A director of a small company in Hanoi specializing in providing building materials to contractors said his business owes partners large sums of money. 

Debts have become three times higher than  initial capital. The company does not have money to pay debts because its partners have not paid for products the company provided. 

He said that the problem is so serious that he sometimes has had to borrow money from black credit sources to pay for urgent items. Recently, after creditors repeatedly urged him to pay debts, he sold his house. Now the director and his family members live in a rented apartment, while the enterprise has suspended its operation because of lack of capital. 

Nguyen Quoc Hiep, chair of the Vietnam Association of Construction Contractors (VACC), said some investors owe construction companies trillions of dong. The construction companies, in their turn, owe building material suppliers and  suppliers owe other partners.

Hiep said the situation is very serious this year. Construction companies’ profit is modest, only 4 percent, and if they cannot collect debts, they will incur losses.

A survey by Atradius, which provides trade credit insurance, surety and collections services, found that up to 58 percent of total B2B transaction value in recent months has been carried out under deferred payments, and up to 48 percent of the transactions are overdue invoices. 

Of these, bad debts are at high levels, and the debt forgiveness rate is 6 percent (the figure is 9 percent in the steel and metal sector), which causes risks in cash flow.

According to Hiep, VACC has been asked by many member companies to help collect debts. Some enterprises complain that they have completed the work, but have received only 60-70 percent of the contracts’ value. 

There are enterprises which have registered capital of hundreds of several billions of dong, but the unpaid amounts are up to nearly one trillion dong.

When the economy is in difficulty, bad debts among enterprises that have transactions with each other become more serious. Many enterprises have overdue debts of up to trillions of dong. 

Business concerns

According to the General Statistics Office (GSO), in the first seven months of 2022, as many as 94,600 businesses left the market, an increase of 18.7 percent compared to the same period last year. The increasingly high number of such businesses shows the difficulties being faced by Vietnam’s businesses.

Lack of capital is the biggest problem businesses cite when asked about difficulties. It is not easy to access bank loans, and input costs have increased by 10-30 percent. Profits have fallen sharply and some products have been selling at a loss. 

Some small enterprises have working capital of several billion to 10 billion only, but accounts receivable are many times higher. As a result, they have to operate at a moderate level or suspend operation.

Analysts warn that the situation may become more serious in the last months of the year. The credit growth rate limit of the banking system set by the state bank is 14 percent for 2022. However, credit room is running out at many banks. 

Agribank, for example, earlier this year was granted a credit growth quota of 7 percent and has used up 6 percent so far, and only one percent is left. The capital supply to businesses and the national economy could be limited. Lending to the real estate sector has also been tightly controlled.

Meanwhile, many businesses will have to pay principal and interest to corporate bond holders this year. The Ministry of Finance (MOF) has estimated that the amount due is VND144.500 trillion. Businesses are not allowed to issue corporate bonds to restructure debts, which puts pressure on enterprises’ cash flow. 

As input material prices are on the rise, businesses need to pay more to stock goods. For example, an enterprise in the past that needed VND100 billion to buy input materials will need VND110 billion this year because the price has increased by 10 percent.

Moreover, enterprises need more capital to step up production for the year-end and Tet sale season.

If capital needs do not improve, the national economy will suffer. Experts have suggested that the central bank lift the credit growth rate cap so as to "provide more oxygen" to enterprises. 

Tran Thuy