Businesses expect interest rate reductions, eagerly

Businesses expect interest rate reductions, eagerly

VietNamNet Bridge – Thousands of Vietnamese businesses are eagerly expecting the interest rate reductions. However, they have been warned that the national economy would face bigger difficulties this year, and that banks themselves would also face big challenges.

Nguyen Dinh Tan, Head of the HCM City Taxation Department, said that by the end of 2011, of the total 144,614 businesses, 8992 businesses in the city had stopped operation, 9322 businesses have stopped operation for definite time and 3412 businesses have given up business licenses.

The input material price increases, the electricity price increases, and especially the sky high interest rates have made businesses’ profits decrease. The number of bankrupted businesses has reached 50,000 nationwide.

Still lacking capital seriously

The report of the Ministry of Planning and Investment about the socio-economic situation in January 2012 released on February 4, showed that the index of industrial production IIP in January 2012, decreased by 12.9 percent over the previous month and by 2.4 percent over the same period of the last year.

According to the HCM City Taxation Department, real estate firms have been and will continue meeting big difficulties in 2012. A lot of them have to bargain away products to get back capital. It is estimated that 70 percent of the projects have halted because of the lack of capital.

Dr Le Dang Doanh, a well known economist, has warned that the garment industry would meet big difficulties. By that time in the previous years, 80 percent of garment companies had got the jobs until the end of the year. Meanwhile, they have got the orders until the second quarter this year.

Wooden furniture, household electronics and construction material manufacturers would also bear a hard pressure this year. As for cement, the inventory level has reached 2 million tons.

The report by the State Bank of Vietnam has pointed out that the dong lending interest rates have been staying firmly high. The enterprises in agriculture and rural development can borrow money at the interest rates of 14.5-17 percent per annum, while businesses in other fields at 17-20 percent, and businesses in non-production sectors 22-25 percent.

Businesses told to save themselves before the interest rates go down

According to the State Bank, the one percent increase in the inflation in January is a good factor that supports the interest rate easing. However, the central bank still needs to consider the right time for making adjustments in order to avoid negative impacts to the macro economy.

Dr Tran Du Lich, a well-known economist, said that curbing the inflation rate at one digit level must be put as the top priority task. If the inflation is uncontrollable, it will be impossible to ease the lending interest rates.

He said the State’s policy needs to serve as the navigator that leads the ship of businesses. Commercial banks themselves also have to settle their problems. In the interbank market, the banks, which have liquidity problems and seek capital in the market, have to accept high interest rates and have collaterals for the loans.

According to the State Bank, at the beginning of February, the overnight interest rate in the interbank market was sky high at 14.18 percent, while the rates were 20 percent for 9-12 month term loans.

Pham Hong Hai, a senior executive of HSBC Vietnam, noted that 2012 would be the year with many uncertainties due to the euro zone crisis, the slowdown in the economic growth in newly emerging markets and the restructure in Vietnam. Therefore, Vietnamese businesses need to be cautious in developing their business. 

“It’s now not the time to expand business scope, but to develop in quality and prioritize the liquidity,” Hai said.

Meanwhile, Andy Ho, Director of VinaCaptial, said that businesses should take initiative in seeking capital sources instead of relying on bank loans.
Source: NLD