While the EVFTA and CPTPP have paved the way for Vietnamese enterprises to penetrate the world market, high taxes and interest rates have blocked their path.
High interest rate, big losses
Hung Vuong JSC, dubbed the ‘catfish King’, has announced the sale of all capital at Hung Vuong Ben Tre Seafood Processing Co Ltd. It has also decided to sell a part of capital in An Giang Seafood Import/Export to reduce the ownership ratio from 79.6 percent to below 50 percent.
Hung Vuong reported the loss of VND112 billion in the first half of the 2019 because the high cost ate into profit. The capital cost increased by 42 percent compared with the same period last year, but it was still high at VND129 billion, or 41 percent of gross profit.
Prior to that, in 2018, its capital approximated the gross profit, and the company made a modest profit of VND1.5 billion from subsidiary liquidation.
|While the EVFTA and CPTPP have paved the way for Vietnamese enterprises to penetrate the world market, high taxes and interest rates have blocked their path.|
In the woodwork industry, Truong Thanh Corporation (TTF) is a well known name. In 2019, TTF plans to obtain revenue of VND1.234 trillion, higher than 2018, but the profit would still be minus because of loans worth hundreds of billion of dong for which it has to pay high interest rates. These include loans from Agribank with interest rate of 10.5 percent and from VDB 11 percent.
TNG Investment & Trade, one of Vietnam’s leading private textile and garment companies, is facing similar problems. It's finance report in the first five months of the year showed that the total capital was VND3 trillion, including VND1.3 trillion worth of short term loans and finance leasing, and VND250 billion in long finance leasing.
Cutting interest rates
Since early July, some central banks have cut the prime interest rates in a growing tendency to loosen monetary policy seen all over the world.
The Australian central bank has slashed the interest rate twice since June. India has cut the interest rate for the third time this year. Iceland, Australia, New Zealand, Russia and Chile all have also eased interest rates to stimulate economic growth.
A report from the State Bank of Vietnam (SBV) released on July 22 showed that the VND lending interest rate is 6-9 percent for short term loans and 9-11 percent for medium and long term. In the first six months of the year, the average core inflation rate was 1.87 percent.
Therefore, analysts believe that it is now the right time for the central bank to loosen monetary policy and cut the interest rate to help boost economic growth.
According to Nguyen Hoang Hai from the Vietnam Association of Financial Investors (VAFI), if the interest rate is cut to 5 percent per annum, this would help businesses cut 50 percent of capital cost.
Soon after the US announced a 0.25 % cut in the benchmark interest rate on July 31 seven Vietnamese banks, including State-owned lenders, announced a cut in interest rates on dong loans of at least 0.5 % to firms in the Government’s priority sectors.