Vietnamese authorities should provide positive solutions to quench businesses’ thirst for capital, thus helping them gradually recover, said Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council.
Enterprises are facing capital woes due to high interest rates, volatile exchange rates, and the “stuck” stock and bond markets. However, recently, the State Bank of Vietnam raised the credit cap for the whole banking industry by 1.5-2 percentage points in late 2022. What do you think about this decision and the current capital market?
Enterprises are facing many difficulties. Both distributors and suppliers have said that they cannot claim debt payments, and businesses owe each other. Liquidity difficulties have become a problem for the whole economy. Recently, the monetary policy regulator decided to increase money supply - this is a very important move in the context of commercial banks and the whole economy facing liquidity difficulties.
In addition to increasing liquidity, the State Bank lifted the credit growth target for 2022 by 1.5-2 percentage points, creating conditions for commercial banks to expand their credit room to support businesses. Once their credit caps are raised, they will continue credit contracts with businesses and provide new loans to the economy, including those for house purchases, thus helping the real estate market to gradually recover.
The stock market has also recovered quite well in recent weeks, helping both domestic and foreign investors gradually regain their confidence in the market. This has driven many listed companies to solve their capital difficulties through financial activities or in other words, gradually recoving financial cash flow.
Thanks to a rise in money supply and expanded credit room, mutual loans between businesses have increased as cash flow is showing signs of improving. Recently, some large enterprises have raised foreign debt, including commercial loans and green credit from international investment funds, with lower interest rates than before (about 9.5-10% per year in Vietnam dong). This is a positive signal, proving foreign investors’ and investment funds’ long-term confidence in the Vietnamese market. In addition, foreign direct investment, especially realized capital, has increased rapidly.
Do all of the above developments show that market liquidity is gradually recovering?
Besides market liquidity improving, mutual capital misappropriation is also gradually decreasing, creating conditions for enterprises to maintain production and business activities and generating jobs for employees at the year-end.
However, their investment cash flow remains a big problem, especially medium and long-term loans. The corporate bond market is still facing many difficulties but the solution to this problem is not very clear. In addition to debt self-restructuring, a number of businesses have issued investment fund certificates, partly easing difficulties in capital.
However, it has worried investors as the legal framework for this investment channel is not clear. Therefore, in order to have short- and medium-term investment cash flows for businesses, the government needs to provide very positive solutions to the bond market, referring to experiences from other countries.
Could you say more about the "positive solutions" from the experiences of other countries?
In China, the government has given huge bank grants to big companies to buy projects from weak companies. Although the situation was still difficult after the acquisition, commercial banks continued to inject capital. China is estimated to have spent $1.6 trillion on this solution and the number will continue to increase. South Korea has established a $35-billion corporate bond guarantee fund for businesses having collateral.
Vietnam, in my opinion, can apply an effective and less expensive measure: allowing some state-owned banks to guarantee bonds of enterprises with collateral. Guarantee will apply to both issued corporate bonds and those to be issued. Thus, large corporations with many assets will overcome difficulties, creating conditions for the real estate market to recover quickly.
The important problem is that businesses have assets but cannot sell at the moment as the market has no liquidity and commercial banks are not interested in secured loans. The guarantee is important because it helps investors have confidence to continue investing. When investors return to buy bonds, businesses can reverse debts and restructure, thus making real estate prices gradually increase and collaterals less risky.
In addition, commercial banks are also entitled to guarantee fees. They should provide guarantee for large corporations with many assets. If we can save about 40-50% of 100 large corporations through guarantee, the market will recover very well. That can be considered a way of using the state guarantee fund through banks, without spending a lot of money and with very low risk.
Do you think any other important solutions need to be applied?
Another solution is to use budget capital. Currently, about VND900 trillion ($38.39 billion) of budget capital has been recorded in the debt of the State Bank of Vietnam (SBV) and is being kept at state-owned banks. This amount is yet to be pumped into the market as disbursement of public investment is slow. A very large amount of money is still kept by the SBV and there must be a way to put it into circulation.
It needs coordination between fiscal and monetary policy. It is necessary to have a guarantee from the SBV so that the Ministry of Finance can be sure that in any urgent case, the central bank will disburse capital from this package.
According to calculations, now money supply growth is very low, at only 6% as compared to an 11% rise in nominal GDP. With so little money in circulation, the credit room extension is not very meaningful. In previous years, nominal GDP expansion was around 5% while money supply growth was 11-12%. As the base money does not increase, the wider credit room may push banks into a race to hike interest rates to have money for loans.
Therefore, the SBV must do two things at once: increase money supply and raise credit growth limits to curb interest rate hiking. The final solution is to rein in cost-push inflation through the reduction of import duties. Tax reduction will help bring the prices of imported goods down and ease pressure on the exchange rate, and the SBV will have the opportunity to increase money supply. To do this, there must be a combination of fiscal and monetary policies.