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Dilemma of banks for indebted SOEs

29-Oct-2004 Intellasia | 28/Oct/2004 Thoi Bao Kinh Te Vietnam page 5 | 1:44 PM

Constant complaints that state commercial banks snub lending to the private sector never seems to die away despite claims by the state banks to the contrary that they have reduced lending to SOE in favour of private businesses.
Presently, there are nearly 4,000 state owned enterprises (SOEs) nationwide. These SOEs mainly survive on bank credits of which loans from the Development Assistance Fund account for a small amount. Some 90% of operational capital is from commercial state banks and an undisclosed amount of loans from foreign commercial banks.
Public comments questioning whether state commercial banks have effectively cut down lending to SOEs leaving many SOEs short on cash is perhaps true to some extent as it is a fact that some SOEs can longer access easy state bank credits as in the past. What is not known, however, is the real figures.
In theory, the SOEs that are no longer automatically provided easy finance from state commercial banks fall into one of the following groups: Firstly, the SOEs that cannot borrow loans from state commercial banks are mainly provincial SOEs, particularly SOEs specialising in international trade, general trading, food and agri-product processing, sugar, textiles and garments, capital construction, and transport and general construction. For the most part these SOEs run at a loss and comprise the major proportion of non-performing loans on the books of state banks.
The second group of SOEs are corporations in such sectors as transport construction, coffee, seafood and other industries that are classified as in a tenuous financial situation with substantial accounts receivable and payable to state commercial banks and their trading partners.
Recent auditing results conducted by foreign auditing firms of 42 major SOEs under nine corporations in seafood, garment, marine, rubber, sugar, steel, paper, food, and cement industries has brought to light the weak financial performance of most SOEs—about 50% are in a “worrying financial situation”. This is attributed to poor management capacity, accumulated debts by investors while unpaid loans to state banks are rising. As for this group of SOEs, some commercial banks have recently proposed the State Bank of Vietnam (SBV) consider requesting authorised agencies to allow the banks to rollover or when necessary, write off unrecoverable NPLs owed by insolvent SOEs.
However, the SBV has repeatedly stated it is now up to state commercial banks themselves to decide whether to rollover or take other measures to resolve the SOE situation to balance their respective financial compensation sources.
Thirdly, many large-scale SOEs in apparel, sugar and so forth under ministries and corporations have poor business performances, their products have weak competitiveness capacity.
Fourth, many SOEs, although apparently operating “normally”, they still carry heavy debt loads with total debts sometimes far exceeding equity. Moreover, their NPLs often exceed the regulated 15% of equity of a single bank. Therefore, if such banks continue to lend to the indebted SOEs, this will not only pose more risk but quite clearly violates lending cap regulations.
Fifthly, projects as appraised by banks were vastly capital intensive but lacked well thought and executed plans on source material growing areas or had prolonged periods of projected returns on capital employed such as paper and pulp, DAP fertiliser, nitrogenous fertiliser and so forth. State banks have said they can no longer be pushed into lending to large and risky government-initiated projects.
But not all SOEs are dead-wood prospects. Some SOEs, corporations, and SOE subsidiaries projects are able to borrow trillions of dongs from branches of foreign banks in Vietnam. These SOEs have strong historicals of finance, sales and markets. These for example include state companies and corporations specialising in building residential houses, condominiums, high-class apartments in big cities.
Other viable projects for loans from foreign and state banks include cement, steel and other production that employ advanced technologies such as shipbuilding, seaports, top-end hotels, automobile assembly, and infrastructure construction of industrial zones. Also, companies and corporations having projects belonging to national strategic sectors such as electricity, post and telecommunications, airplanes, railway, import of nitrogenous fertilisers, import of petroleum, and so forth are still allowed to borrow loans worth trillions of dongs for each project. Many of these companies or corporations are allowed to borrow up to more than 15% of chartered capital of a bank. Moreover, state commercial banks also lend many projects in these sectors as syndicated loans or co-guarantees.
So gradually recent regulations have limited the easy spending and borrowing days of SOEs and there is more equality in credit relations between banks and SOEs and it is hoped that in the near future these laws will help create equality between SOEs and the private sector.


Category: Finance

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