VietNamNet Bridge – Many enterprises have taken out U.S. dollar loans from foreign individuals and organizations to benefit from low interest rates, at around 1% a year.

An employee of ACB counts U.S. dollar banknotes. Many local firms have taken out loans from foreign individuals and organizations.

By end-June, corporate customers in HCMC had taken out around US$3.2 billion, or VND69.4 trillion, in foreign loans, up 3.2% against the same period 2012. Of this, foreign direct investment (FDI) enterprises accounted for 65.7% of the total with over US$2.1 billion. Domestic firms borrowed over US$900 million, of which non-financial companies took around US$734 million, up 6.5% year-on-year.

Nguyen Hoang Minh, deputy director of the central bank’s HCMC branch said that as for FDI firms, these loans are mainly financed by their parent companies.

Meanwhile, local enterprises usually get foreign loans through equipment purchase contracts with foreign partners under deferred payment terms, investments in projects, loans from acquaintances abroad or government-backed loans. Such sources of funding are much cheaper than domestic loans, Minh said.

However, few enterprises have been able to gain access to foreign banks for loans given the lack of consulting and brokering services. Only major companies that are known on international markets can access foreign loans.

Duy Tan Plastic Joint Stock Company has bought over US$500,000 worth of equipment from a foreign partner. Tran Duy Hi, general director of the firm, said the foreign seller allowed his company to pay by installment with an interest rate of less than 1% a year, so this was in fact a foreign loan.

Many other firms in cement, paper, packaging and real estate sectors have also got foreign loans this way.

Nguyen Quang Huy, head of the Foreign Exchange Department under the central bank, told the Daily that demand for foreign loans had leapt in recent months, with FDI enterprises being major borrowers.

FDI firms often seek medium and long-term financing from their parent companies and financial partners, so foreign loans account for 65-80% of total investment capital of FDI enterprises.

In the past when there were big FDI projects in place, their demand for foreign loans would lead to an increase in outstanding foreign loans, Huy said.

The central bank is monitoring the situation and would take measures to make sure that these loans are within the nation’s limit.

While domestic sources of funding have yet to meet demand, it is necessary to mobilize capital from abroad. Enterprises’ taking out foreign loans in recent times has helped them supplement medium and long-term capital for investment and business, Huy said.

However, these loans will lead the nation’s foreign debt to augment.

Source: SGT