|Preliminary processing of fresh coconut for export at Vina T&T Company. Illustration: T.L|
Major industries are struggling
Mr. Nguyen Ngoc Hoa, Chairman of Ho Chi Minh City Business Association: Need to restore the stimulus program soon
Ho Chi Minh City’s investment stimulus program in the previous period had greatly supported enterprises in technological innovation and production efficiency. But for more than 2 years now, this program has been stopped, causing many enterprises that have participated halfway to stop, so it is very difficult. Therefore, Ho Chi Minh City should soon have a solution to restore the stimulus program to support enterprises.
The survey recently conducted by the Ho Chi Minh City Business Association has shown a gloomy picture of the production and business status of enterprises in most of the key economic sectors.
Specifically, the export turnover of the textile and garment industry decreased by over 8% over the same period. Many enterprises have to reduce working hours to maintain and retain employees. Most enterprises are actively restructuring, saving, reducing resources, and cutting spending.
Common difficulties are a lack of cash flow, they cannot access loans, many enterprises are not disbursed, and bad debts are not transferred. Therefore, since mid-2022, textile and garment enterprises have not invested and tended to resell and lose their brands. It is predicted that the coming months will be a difficult period for garment and textile enterprises.
The electromechanical industry also has a general situation of reduced orders, with some enterprises down to 50%; on-the-spot export orders also decreased by 30-40%. Vietnamese mechanical enterprises face fierce competition from FDI enterprises, especially small and medium-sized enterprises, which have to reduce working hours and reduce labour in order to reduce production costs.
The real estate industry froze, enterprises lacked cash flow, affecting the supply chain, lack of money to pay contractors, pay bondholders to pay bank interest, pay wages to employees.
Supply was also affected, while iron prices increased, construction contracts signed continued to lose. Funding is very difficult, almost impossible to access a support package of VND 120,000 billion for interest rates from 1.5%-2%.
Collateral is agricultural land that is very undervalued and the value of the collateral is generally reduced by up to 30%, requiring additional collateral while enterprises are almost exhausted.
The difficulties of the real estate industry have led to the construction material industry currently having about 40% of enterprises in the state of inoperability, it is likely that by the end of 2023, many enterprises will go bankrupt if the situation does not change. Other industries such as food and foodstuffs, industrial construction, fine arts and wood processing, and tourism also face many difficulties.
Need capital, but borrowing is not easy
Speaking at the seminar “Opening up capital flows into production and business” held recently, Mr. Nguyen Ngoc Hoa, Chairman of Ho Chi Minh City Business Association said that the market was difficult, so most enterprises were just trying to endure in the current period with the expectation that the situation would be brighter by the end of the year.
However, the previous loan still generated interest, so enterprises wanted the banks to have a policy of debt freezing and debt rescheduling for them. “The debt freeze and debt rescheduling need to be progressive because if the market gets better in the next year, it will be very difficult for enterprises having just recovered to pay the accumulated debt of 2 years,” Mr. Hoa said.
Besides, according to Ho Chi Minh City Business Association, many enterprises borrowed from banks to invest in machinery, purchase raw materials and have mortgaged all assets with legal ownership. Now, they want to borrow more but no longer have any assets to mortgage, the factories are not accepted as collateral by the banks.
Mr. Pham Van Viet, Vice Chairman of Ho Chi Minh City Garment – Embroidery – Knitting Association, President and General Director of VitaJean also said that the number of raw materials in stock and inventories of textile and garment enterprises was very large.
Besides, in the past, foreign customers all received goods and extended payment for 90-160 days, but due to difficulties, customers now required the company to deposit, making cash flow difficulties, and not meeting the requirements of banks. Mr. Nguyen Van Tri, Director of Lap Phuc Co., Ltd. said that after more than 30 years of development, through many times of borrowing money from banks through the stimulus program of Ho Chi Minh City, Lap Phuc had grown on par with large enterprises. The company’s factories, pieces of machinery and equipment were very modern. Mr. Tri believed that bank capital played a very important role in the development of the company. “Lap Phuc is lucky enough to participate in Ho Chi Minh City’s stimulus program, which means that the company only pays the capital and interest is paid by the city. It would be very difficult if the company had to pay interest on their own, we cannot make any ready-made products with 20-30% profit,” Mr. Tri shared.
Accordingly, Lap Phuc manufactures high-tech products in the pattern sector for automobile manufacturing and exported them to the US. But the company has to compete with Chinese products, the price must always be low to sell, so the profit margin is very limited.
However, not all enterprises have difficulty accessing bank capital. Mr. Nguyen Dinh Tung, General Director of Vina T&T Company, said that the company had a stable market and the export of fruit was still good, the cash flow was stable, so Vina T&T still enjoyed the bank’s incentives. Currently, the company was borrowing capital from BIDV, Vietinbank with an interest rate of about 8-8.5% per year, much lower than many other enterprises. And if it had to borrow at an interest rate of over 10%, Vina T&T would not be able to survive.
However, Mr. Tung also had concerns about the valuation of collateral for loans at banks. Specifically, the investment cost of long-term plants such as jackfruit and durian were quite large, from VND 50-70 million per ha and after only 1-2 years will start harvesting. But for a long time, the bank only conducted valuation for land, fruit trees were not considered assets, making it difficult for farmers to get loans. Currently, enterprises like Vina T&T were investing in farmers and then consuming products for export, but their resources were limited, so the investment was not much.
Similarly, Le Mai Huu Lam, General Director of Cat Van Loi Industrial Electrical Equipment Manufacturing Joint Stock Company, said that the company leased land in the industrial park for a term of 50 years and paid annual rent for about US$ 170 -190 per m2. The company had invested a large amount of money to rent land and build factories, but when borrowing, the bank only determined the price of the factory, not calculated the value of the leased land, so the loan value was very low.
Accordingly, enterprises all want the banking industry to have a solution by valuing collateral under market prices, increasing the guaranteed rate of collateral, allowing mortgage of annual leased land assets, piloting unsecured loans and increasing the value of mortgages with agricultural land. Particularly for the textile and garment industry, in the face of high inventory and difficulties of cash flow, Mr. Viet wanted the banking industry to have a lending policy based on receivables, inventory materials and inventory products. In addition, it is necessary to loosen the lending regulations because in the current conditions, if the regulations remain the same as before, enterprises cannot access them.