VietNamNet Bridge - Experts at a conference on investment channels held in HCMC on Thursday differed over the impacts of high interest rates on enterprises, as some said the high cost of capital was driving local firms to bankruptcy and others rejected it.

The announced topic of the conference on identifying investment opportunities for 2011-2012 was skipped as the controversy over the high interest rates took center stage at the business gathering, besides debates about macro uncertainties.

Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee, told the meeting that inflation fighting is a long-term target, and the Government must not unwind the policy after just a few months to avoid flip-flop policies.

Nghia said in the first six months this year, money supply increased by about 3%, or VND78 trillion.

However, half of the money supply went to investment in Government bonds with most of the buyers being commercial banks, and only half came out as credits. This has led to a shortage in Vietnam dong and pulled up the interest rates.

Enterprises in hot water

Nghia said enterprises were really locked in a difficult situation. According to a survey of his committee, 100 enterprises including exporters have big stockpiles now while 130 listed firms show very bad cash flows in their reports.

“If monetary policies are still tightened like currently, the situation will mount to stagflation, and GDP growth in the third and fourth quarter would be lower than 5%, not 6%-6.5% as expected by the Government,” Nghia told the conference.

The expert said measures should be taken to lower the interest rates as a lifeline for local enterprises given better conditions now. He cited reasons for cutting the interest rates like falling Government bond’s rate and inter-bank rate, though the cut will not be deep.

Meanwhile, Nguyen Duc Vinh, CEO of Techcombank, said that high interest rates were just another factor aggravating the woes for local enterprises.

As a practitioner in accessing enterprises as corporate borrowers, Vinh said many local enterprises were not using loans in a wise manner, piling pressure on themselves when the interest rates went up.

Techcombank now serves 50,000 enterprises but only 10%-15% of them have frequent transactions with the bank. The bank has gathered statistics on their clients, and finds out that 70% of the enterprises are in difficulty now, with nearly one-third of them mired in a tough situation that must be placed under the bank’s special surveillance.

However, Vinh said, “the high interest rates are just one reason making enterprises’ situation worsen. The basic reason is the imbalance and lack of concentration in enterprises’ operations.”

“Private companies usually have equity over total operating capital at 15%-20% while the ratio at State-owned companies is less than 10%,” Vinh said. Meanwhile, over 60% of the enterprises use a lot of short-term capital for long-term investments, most of them putting capital into the real estate sector, he said.

Enterprises are using only around 60% of borrowed capital for their core business, and when their non-core business activity does not pay off, the core business will bear the burden of all the interest sums, meaning the real interest rate is 30% in the case of a nominal interest rate of 20%, Vinh explained.

The other voice

Vo Tri Thanh, deputy head of the Central Institute for Economic Management (CIEM), vehemently denied high interest rates as the root cause for difficulties facing enterprises now.

“Looking at macro indicators in the first six months this year, I think enterprises’ pronounced difficulty is a bit exaggerated,” Thanh said.

Gross domestic product still rose 5.6% in the first six months, while import still increased by a double-digit rate, he said, and these proved that people still invested and consumed, he said.

He added that enterprises still maintained their manufacturing activity, as evidenced by industrial output growth of 14.3% in the year’s first half.

If credit growth this year increases by 20% as endorsed by the central bank, the real number will be US$25 billion.

“If money is not poured into real estate and the stock market, can the real economy of Vietnam absorb this huge amount of capital?” he raised the question.

Thanh said interest rate would be still high as the country was making efforts to curb inflation.

“However, I think enterprises still can survive hardship in the next four months,” he said.

Source: SGT