High interest rates cause misery for businesses

Companies in Ho Chi Minh City, Vietnam's economic hub, are facing extreme difficulties due to high lending interest rates and some are considering selling up to pay debts, businesses told a dialogue with municipal authorities on Friday.

Nguyen Ngoc Hoa, chairman of the Ho Chi Minh City Business Association (HUBA), said that a number of industries are in a critical situation, especially the wood processing industry, which has seen orders plunging. Falling orders have resulted in rising inventories and lack of cash flow, he added.

Real estate businesses are encountering even bigger hardships as the market slides towards a recession. Many developers have had to downsize their operational scale, and stop or postpone investment activities, project implementation and initial public offerings (IPOs).

A number of enterprises in other industries are also unable to pay their debts or make further investments, he said, describing high lending interest rates as a major obstacle.

"Currently, a lending interest rate of above 10% per year is really a big obstacle for businesses that use financial leverage. The State Bank of Vietnam should mobilize existing capital sources in society to lower the rates," he said.

Hoa proposed city authorities consider resuming an investment stimulus program which had been implemented for 20 years to help businesses raise their investment capacity.

Controlling the "net interest margin" (NIM) ratio at 3% is also a necessary solution for commercial banks to share these difficulties at present, Hoa added. He also expected the government to continue extending repayment deadlines for medium- and long-term loans this year.

According to Pham Van Viet, vice chairman of the HCMC Association of Garment-Textile, Embroidery and Knitting, in addition to applying high lending rates, banks have also strictly controlled credit and even revalued collateral to only half of last year’s value to reduce credit limits, making it more difficult for businesses.

Moderate production and capital shortages will lead to bad debt, he warned.

Ly Kim Chi, chairwoman of the HCMC Food and Foodstuff Association, said that high interest rates are biting into the profits of businesses in the food industry, which is one of the few that have maintained production capacity.

Currently, with lending interest rates of over 10% and rising prices of electricity, water and raw materials, many businesses are on the brink of collapse.

According to her, several large enterprises with decades of experience in the industry are at risk of being acquired by foreign investment funds and enterprises.

"This is very alarming and worrying. No one wants to sell out to another. We need comprehensive support policies regarding interest rates, capital, investment incentives and material areas to raise production capacity and compete with foreign firms," she said.

In response, Vo Minh Tuan, director of the State Bank of Vietnam (SBV) HCMC Branch, said he would report their proposals to the central bank for appropriate solutions. Tuan also revealed that in the next few days, the SBV will allocate credit quotas to commercial banks.

According to vice chairman of the municipal People's Committee Vo Van Hoan, the city is committed to accompanying businesses to remove any difficulties as soon as possible.

“Municipal authorities can even meet with individual businesses to solve the problems they are facing,” he added.