Good policy implementation to help businesses access capital needed post pandemic

Economist Vũ Đình Ánh

Việt Nam’s economy is recovering and businesses are in dire need of capital, especially “cheap” (low interest rate) capital to revive and develop their production and business activities post-pandemic. The latest data from the central bank revealed financial institutions and banks pumped more than VNĐ11 quadrillion (US$478 billion) in the economy as the end of May, up 7.66 per cent over the end of 2021 and twice of the number in the same period of last year. This growth rate has partly shown the urgent need for capital of enterprises since the beginning of this year.

Economist Vũ Đình Ánh talked to the Vietnam News Agency Television (Vnews) about the credit growth and the interest rate towards the end of this year.

What is your assessment on the credit supply since the beginning of this year?

The credit growth to date has shown great efforts made by credit institutions and commercial banks in supplying capital to the economy in line with the recovery speed of the economy, enterprises and business households. After only four to five months, some banks have reported using up their full-year credit room, which means bank lending has partially met the capital needs of businesses.

I must emphasise on “partially” because in the first quarter, the economic growth rate reached just over 5 per cent while the Government’s whole-year growth target is 6-6.5 per cent which implies the credit demand will continue to increase. Banks have done rather well in the first phase but the next stage needs more policies to further expand credit supply given the fact that most businesses still rely on bank credit to do business.

While enterprises are longing for “cheap” capital, lending interest rate tends to increase. What do you think about this trend?

Lowering lending rates is especially difficult this year.

First, inflation rate was low in the past two years, below 3 per cent in 2020 and below 2 per cent in 2021, but this trend is showing signs of reversing with the consumer price index (CPI) rising by 2.6 per cent in the first few months of this year, challenging the Government’s target of 4 per cent for the whole year. It’s clear that both deposit and lending interest rates are forced to adjust towards an increase, not a decrease like two years ago.

Second, because many banks have used up their credit rooms and along with liquidity problems, some banks had to increase their deposit rates, and despite being willing to do so, it’s very difficult for banks to reduce the lending rate.

Third is the bad debt issue. After the circulars of the State Bank of Vietnam on debt extension and debt rescheduling expire in October 2022, bad debts on the balance sheet and off-balance sheet of some banks and credit institutions will increase consequently, then those banks have to increase their risk provisions which make it harder for them to lower interest rates.

In addition, many banks are planning to increase their charter capital as well as boosting investment in digital banking, so growing investment accompanied with high employee and operation costs contribute to low chance of decreasing the lending rate. In fact, our hopes should not be lower interest rates but to keep interest rates at the current levels to alleviate pressure of rising capital cost for enterprises which will push production cost and increase inflation.

Many businesses cannot access bank capital, let alone cheap capital. What are solutions to this problem?

First, we know that only about 50 per cent of businesses can access bank’s credit, not to mention cheap or expensive capital and the remaining 50 per cent cannot access loans. I think in the near future, we should increase the size and credit limit for banks so that the number of businesses that can access bank loans will increase.

Second, “cheap” capital is not equal among banks. For example, some State-owned commercial banks offer reputable clients an interest rate of around 8 per cent per annum, but in most non-State commercial joint-stock banks, the lending rate even for trustworthy clients is about 11-12 per cent per year or even higher. So, it is clear that there is inequality between banks and even inside a bank depending on the customer’s classification and relationship with the bank. Therefore, to access cheap capital, enterprises must first choose its partners (banks) and then raise its status to reputable businesses that can access cheap capital.

The Government introduced the socio-economic recovery programme worth VNĐ350 trillion (roughly $15 billion) this year, including a 2 per cent interest rate support package worth VNĐ40 trillion. We should accelerate these programmes and even after disbursing all of this support amount, then we can evaluate the national financial capacity for additional support so that more businesses can enjoy cheap interest rates.

Late in May, the Government officially issued Decree 31 on interest rate support from the State budget for loans of enterprises, cooperatives and business households. What are your expectations for this support package?

I think this decision is very necessary and important and we should put it into practice soon as to stimulate the recovery, enterprises need capital, especially cheap capital. If we can do this, it will be a very timely and practical support for the business community.

However, there’s a reality that though the State budget revenue is very good recently, disbursement for public investment and the recovery programme is quite slow. So if we can implement this interest rate support package well, I think we can increase the support amount because it is very helpful for businesses.

More importantly, it is necessary to learn experiences from the implementation of the 4 per cent interest rate support programme in the 2009-10 period related to the right beneficiaries, right purposes, and trying to avoid the possible violations that can lead to reduced efficiency and unfairness between businesses.

Besides lowering lending rates, are there other solutions to support businesses? Can they raise capital from the securities market?

In a recent survey of the General Statistics Office on the top concerns of enterprises, credit/capital access or low-interest capital only ranked 6th to 8th. Their most concerned areas included the consumption market, competitiveness and technology improvement. I think that in addition to capital solutions, we should pay attention to the areas that businesses are most interested in. For example, most Vietnamese enterprises have limitations in labour productivity, equipment, product quality or product cost, affecting their competitiveness in both domestic market and international markets.

Meanwhile, regarding inputs, we focus on capital. Most businesses still rely mainly on bank loans but there are a number of business groups that have recently focused on other resources such as issuing shares, corporate bonds or even seeking capital in foreign markets.

We must create a really healthy environment so that enterprises, including large enterprises and small and medium-sized enterprises, have more opportunities to mobilise capital both at home and abroad for production activities. In this way, we can diversify capital sources and reduce pressure on the banking system.

What is your prediction about capital needs of businesses for the rest of the year?

Certainly, with the current economic recovery speed and while some other capital mobilisation channels facing difficulties (stocks and bonds), the dependence on bank capital will be much greater. In the third session of the 15-tenure National Assembly meeting this month, policymaker should consider expanding the credit growth rate to 14-15 or 16 per cent this year.

We should also find measures to help stabilise the current interest rate level, avoiding interest rate hikes that may put pressure on the resilience of businesses.

For commercial banks, based on the qualifications, reputation and financial capacity of each bank we should extend the credit room for them because some are running out of credit room, but some are using very little of their room due to limited customer sources. —V NS