Finance companies’ annual reports show that their total assets and profits have decreased sharply.
Finance companies “lose weight”
The sharpest decrease could be seen at EVN Finance, a subsidiary of the Electricity of Vietnam (EVN), wSTC total assets plummeted by 5,216.06 billion dong, or HAFIC, wSTC total assets decreased by 2,372.66 billion dong. The finance company belonging to the Vietnam Coal and Mineral Industries Group also has seen the total assets drop by 820.75 billion dong, while Song Da Finance (SDFC) by 369.47 billion dong.
Most finance companies have shrunk themselves in the context of the worsening business environment.
The report of a company pointed out that the biggest reason behind the sharp fall of the total assets and profits in 2011 was the sharp decrease of the assets profitable from lending, capital trade and investment activities.
Finance companies had to shrink themselves not only because they needed to take defensive measures in anticipation of the bad debt risk, but also because they fell the pressure in liquidity balance.
The finance company said that it was very difficult to seek capital on the interbank market, especially in the fourth quarter of 2011, when all big banks tightened the lending.
Meanwhile, the current limitations on financial companies’ operation made it impossible for the companies to mobilise capital from the public. It was impossible to call for capital by issuing bonds, since the capital market had been decreasing for a long time.
Since finance companies could not mobilise capital, their lending plunged, thus leading to the sharp falls of the total assets. The profits of finance companies in 2011 were reportedly equal to 20-30 percent of that of the same period of the last year.
When the feet get weaker, one would have to lose weight to be able to stand and walk firmly. It’s clear that the total assets of finance companies have decreasing rapidly over the last two years. However, why have the feet got weaker?
The legal barriers
The current regulations do not allow finance companies mobilising capital from individuals. Meanwhile, analysts all agree that the capital from individuals could amount to 44 percent of the total mobilised capital. Meanwhile, the capital from the public has a big advantage that it is more stable than the capital from economic institutions.
Meanwhile, finance companies have to compete with commercial banks – the very redoubtable rivals – in attracting capital. High interest rate proves to be not the only competitiveness in capital mobilisation. Depositors would also be attracted by associated added values offered by commercial banks. Meanwhile, in this term, finance companies clearly inferior to banks.
While commercial banks have large networks of transaction points and branches throughout the country, finance companies do not have such big networks to mobilise capital. Big banks could have thousands of transaction points, while every small bank has at least 100 points. Meanwhile, PVFC, which is considered the biggest finance company, has only 15 points, and other companies only have several points.
Regarding the distribution capacity, while banks have transaction points, agent banks, ATM, internet banking and mobile banking, finance companies only have branches.
Under the current laws, finance companies are not allowed to open payment accounts for institutions and individuals, while banks have been expanding the services.
Analysts have pointed out that finance companies are now experiencing the toughest days in their history. Especially, they are facing a big threat that the parent groups, which are the main capital contributors, are attempting to withdraw the investment capital from the companies to gather their strength in their core business fields.