Cash-starved businesses remain hungry without credit access

Construction company Dai Dung in Ho Chi Minh City has struggled to borrow from banks at interest rates 8-10% a year, which is nearly its profit margin.

“To pay that interest we need to have a profit margin of 15-20%, but that is difficult in current times,” deputy CEO Trinh Manh Hung told VnExpress.

Many of Dai Dung’s partners and suppliers are also facing similar difficulties because only companies with strong finance contingency plans and good collateral can get loans easily, Hung said.

But even these firms can be rejected as many banks have reached their credit quotas, and loan requests are no longer approved quickly, he added.

Businesses in other sectors are also struggling to obtain bank loans.

In the food industry, operation and input costs have increased because of inflation, which means that food companies need to increase their capital by over 50%, said Ly Kim Chi, chairwoman of the Food and Foodstuff Association of HCMC.

The need for cash is even more urgent as businesses need to prepare production for Tet, Vietnam’s biggest holiday which falls in January next year, she said.

However, many food businesses have complained that they are unable to borrow from banks as the latter have run out of their credit quotas.

“The banking sector should consider giving food companies priority in accessing loans so they can keep food prices stable and therefore help control inflation,” Chi said.

Pham Ngoc Hung, deputy chairman of the HCMC Union of Business Association, stressed that cash was the biggest need of businesses now.

After the Covid-19 pandemic, many small and medium enterprises have left the market due to the lack of access to funding. Lenders require collateral that such businesses don’t have, he said.

Tourism companies, for example, need cash to boost their recovery, but they operate in the services sector and therefore do not have collateral like land or factories, said Bui Thi Ngoc Hieu, deputy director of the HCMC Tourism Department.

Barren incentives

The Vietnamese government has planned 2022 as a year of recovery after two years of pandemic imposed economic challenges. Its recovery plan includes a 2% deduction of interest on business loans, but companies are struggling to benefit from this incentive as banks say they have reached the maximum amount of loans the central bank allows.

The government intended to provide VND16 trillion ($674.54 million) in interest support on loans this year, but three months after launching the program, just VND1 billion has been disbursed.

Tran Minh Tu, CEO of metal tools maker Kem Nghia in HCMC, said many businesses were facing difficulties in acquiring new loans, with banks only agreeing to lend the amount that they repay on current loans. For instance, they would only lend VND5 billion if the business has already paid back that amount on an existing loan.

Companies with slow cash flows and low sales will find it even more difficult to get loans, he added.

Nguyen Van Be, chairman of the Ho Chi Minh City Export Processing Zone and Industrial Park Authority Business Association, said that many companies have delayed their plans to expand and upgrade their technology because of the cash shortage.

Some businesses are also worried that with deposit interest rates being raised, banks will also hike loan interest rates.

Several lenders like SCB, OCB and VPBank have increased their deposit interest rates by 0.8-1% from the beginning of the year to 6.2-7.3% per year.

Economist Can Van Luc said small and medium enterprises need to consider other funding channels

Finance leasing is an alternative option as the finance company will typically be the legal owner of an asset while the lessee has operating control over the asset and economic risks and returns are shared, he said.

There are at least 11 finance leasing companies in Vietnam and this sector is set to expand further in the future, Luc said.

Another option is to approach venture investment funds, he added.