Debt deferment needed to ease capital thirst: economists

A national debt deferment program is needed to ease businesses’ current thirst for capital, helping them recover and maintain operations as well as carry out reinvestment activities within the next one to two years, said economists.

According to Tran Du Lich from the National Financial and Monetary Policy Advisory Council, enterprises in all sectors are facing a myriad of difficulties. Garment and footwear firms lack orders while real estate developers have no money to continue implementing their projects.

Besides businesses, commercial banks themselves are also facing liquidity-related problems with rising bad and doubtful debts, low deposit growth and a congested corporate bond market.

Economist Nguyen Tri Hieu noted that at present, all capital-raising doors are virtually closed to businesses. Limited credit room and tense liquidity have caused interest rates to surge. Many businesses, especially in real estate, could not borrow money even though they accept high interest rates.

The U.S Federal Reserve's (Fed) interest rate hikes have directly affected the Vietnamese stock market. "The recent stock market plunge has made it difficult for businesses to issue shares to raise capital," he said.

Looking at the bond market, the situation is much worse. After the arrest of leaders of Tan Hoang Minh and Van Thinh Phat for bond issuance violations, the confidence of investors, especially small ones, in the market fell sharply. In the third quarter, the volume of issued bonds plummeted by 50.5% quarter-on-quarter and by 70.9% year-on-year.

After two years of struggling against Covid-19, company capital became exhausted. Overdependence on bank capital is pushing them into a dilemma: maintaining moderate operations or shutting down.

Although businesses are thirsty for capital, most economists agree that the interest rate hikes by the State Bank of Vietnam (SBV) and commercial banks are necessary. This is in line with the general developments of the world, as well as contributes to stabilizing the macro-economy and harmonizing interest rates, inflation, and exchange rates.

To solve the capital problem for enterprises at this time, Hieu proposed a national debt deferment program to help businesses continue to raise capital through the bond channel to maintain operations.

According to him, after two years of pandemic fight, businesses are facing a range of difficulties. The government can intervene in the market by requiring bondholders to accept their debt payment postponement. However, only those who issued bonds in accordance with regulations and are able to recover production and business activities are entitled to debt deferral, he added.

"It can be understood that this is a mass program and businesses that meet the criteria set by the government and the Ministry of Finance will enjoy debt deferral within one to two years so that they can recover payment capacity," said Hieu.

He suggested the central bank give special loans to issuers to help them pay interests to bondholders on time until their payment capacity recovers.

Echoing Hieu, economist Truong Van Phuoc emphasized the need to develop a stable, safe and effective bond market.

"To minimize risks to investors, bond issuers must have collateral. Those who have collateral and good business and production plans but are unable to access bank loans for many reasons can issue bonds. Meanwhile, enterprises without collateral need to have their credit ratings publicized," Phuoc said.

It is necessary to have debt restructuring and deferral policies for companies that cannot pay for maturing bonds due to pandemic impacts, he said, noting any firms that intend to appropriate the money of investors must be strictly punished in line with the law.

To save businesses and the whole economy, the Private Economic Development Research Board under the Prime Minister's Advisory Council on Administrative Procedure Reform proposed allowing domestic commercial banks to repurchase bonds that are due to mature and consider them a special credit as the value of maturing bonds in the coming time is many times higher than the repurchasing capacity of some state corporations like the State Capital Investment Corporation (SCIC), the Debt and Asset Trading Corporation (DATC), and the Vietnam Asset Management Company (VAMC).

It also proposed the SBV works with commercial banks to design preferential credit packages for key industries and production sectors, including those for small- and medium-sized enterprises.

In the real estate field, credit should not be tightened for projects to build social housing, hospitals, schools, production infrastructure, thereby creating opportunities for many groups of businesses involved.

In order to support the recovery efforts of enterprises, especially private ones, amid capital shortages, the government should consider extending a number of policies to support businesses during the Covid-19 pandemic until the end of 2023. They include a 2% reduction in VAT, postponement of the application of the new land rent fees according to the government's Decree No. 96/2019/ND-CP; and credit policies like rescheduling debt repayments and keeping debt groups unchanged.

According to Lich, the monetary policy cannot be loosened at present. However, necessary support should be given to the right enterprises and projects to avoid market disruptions.

For example, in real estate, capital should be disbursed for projects that are under construction and need capital so they can be completed on schedule, he said, adding that priority should also be given to projects to develop housing, industrial zones and trade centers.

Correcting the bond market is right, but it is necessary to create conditions for businesses that comply with regulations to continue issuing bonds as it is an important capital mobilization channel that helps share the medium-term capital burden with commercial banks, Lich said.

The Ho Chi Minh City Real Estate Association (HoREA) proposed the government and the SBV consider expanding bank credit by 1-2 percentage points to have an additional VND100-200 trillion ($4-8 billion) in credit available to bolster the economy during the year-end.

It asked for conditions to be created for individual investors who are not "professional securities investors" to fund and buy corporate bonds via private placements at a certain percentage. This policy will attract idle capital from the public and allow people one more investment channel.

This association also proposed the government and the Ministry of Finance create favorable conditions for large-scale, reputable enterprises, public and listed companies with credit ratings to offer bonds to individual investors who are not "professional securities investors".

Such individual investors should be allowed to entrust their bond investment to securities companies and capable organizations through commercial contracts in line with regulations, according to HoREA.