Business struggling with bank debts

13-Jun-2014 Intellasia | Thoi Bao Kinh Te Saigon | 6:00 AM Print This Post

The credit growth of the whole banking system as of May 22, 2014 was merely 1.31 percent from the end of last year, why?

The annual general meeting (AGM) of Truong Thanh Furniture Joint Stock Co (TTF), which took place in April decided to hike the company’s chartered capital by offering more shares to the existing shareholders priced at par value. The major purpose was to raise money to repay for its debts at bank and support the working capital.

When making the decision, the market price of TTF-coded share was above the par value. Then, the stock market went down and TTF-coded share price fell to below 10,000 dong each, the company announced to cancel the share issuance decision.

Truong Thanh Co is just one of many companies that are struggling in any way to get out of the “muddy heap” of bank debts. Profits were prioritised for debt repayment first. Last year, the company produced only 50 percent of orders due to working capital shortage together with the lack of raw materials for production as the raw materials were used as collateral at bank.

To save TTF, Debt and Asset Trading Co (DATC) had to intervene. TTF sold 543 billion dong of its debts at Vietnam Commercial Joint Stock Bank for Foreign Trade (Vietcombank-VCB) to DATC, of which, a part of debt was converted into stake contribution and the remaining part was provided at an interest rate of 7.8 percent per year.

In addition, TTF would issue 19.56 million shares priced at 8,400 dong each to DATC. The conversion of debt into capital contribution at least helps the company escape from the debt repayment pressure.

Unfreezing the capital flows for production is right track, but the consumers should be targeted to stimulate the commodity consumption demand.

Not lucky like TTF, Song Da Urban and Industrial Zone Investment and Development Joint Stock Co (Sudico-SJS) settled debts by selling land to banks.

Nam An Khanh is the most valuable project of Sudico. The company divided four hectares of land to sell to Vietnam Maritime Commercial Joint Stock Bank (Maritime Bank) for clearing of 400 billion dong of debts.

Sudico’s plan is to continue to sell land to Vietnam Technological and Commercial Joint Stock Bank (Techcombank) to have money to pay for the bonds to be matured in early third quarter of the year. SJS’ debt from bond issuance has high interest rate of up to 18 percent per annum. How can SJS make profit to pay for such high interest rate in the current difficult realty market context?

More unfortunately, some other real estate companies are willing to take losses and transfer projects but the creditors who are banks refuse to buy. Not all banks accept the debt clearing by assets.

Investment And Trading Of Real Estate Joint Stock Co (coded ITC) was resigned to sell Intresco Tower in Phu Nhuan district, HCM City to have 300 billion dong for debt repayment while the book value was over 550 billion dong, accepting a loss of about 260 billion dong in the fourth quarter of 2013. Realty firms said the asset price, which banks accept to receive for the debt clearing, is even better than the loss-cutting price in the market.

Aforementioned cases are typical examples explaining partially why the credit since early this year as of May 22 increased only 1.31 percent compared to the end of last year.

First, profitable and effective companies virtually do not have demand for borrowing.

Southern Rubber Industry Joint Stock Co (CSM) is carrying out its capital withdrawal plan from some real estate projects although the company do not lack capital and it receive incentives from banks if borrowing capital.

Second, businesses that are in need of capital are managing by all means to have capital and only choose banks in the last resort. The loan rates of about 9-10 percent per year have been lowered than previously but the profit margin is now narrow and it is difficult to bear to financial costs.

Third, high rate indebted companies can not afford to repay for debts because of being exhausted, ignore debts and put the debts at banks’ disposal.

The State Bank of Vietnam (SBV) has lately said that so far there are still certain percentage of loans with interest rates of above 13 percent per year and 15 percent per year. These loans could become bad debts or not but it is not easy to settle and it is hindering the central bank’s interest rate management policy.

For years, the central bank has often been using the interest rate of the open market operation (OMO), refinancing rate and deposit rate cap to regulate the general interest rates while “forgetting” the base rate.

On the central bank’s website, the base rate is still being announced at 9 percent per year. And therefore, the outstanding loans with loan rate at above 13 percent year will not violate the provisions of the Civil Law that the loan rate is not allowed to exceed 150 percent of the base rate. The provisions of the Civil Law should be revised to suit the situation of the economy. However, while it is not revised, the law is still being implemented strictly.

To reach credit growth, apart from improving the purchasing power and facilitating businesses in settling the inventories, the lending rates should be further lowered.

 


Category: Finance

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