Agricultural enterprises still “treading water” because of credit

Many banks have oriented to credit for agricultural enterprises. Photo: Trần Việt

Strenuous work due to lack of capital

According to statistics of the State Bank, accounts outstanding for loans in the agricultural sector and rural nationwide (excluding accounts outstanding for loans of Vietnam Bank for Social Policies and Vietnam Development Bank) till September 30^th 2016 reached over 925.000 billion VND, an increase of 9.6% compared to the end of 2015 and an increase of 13.43% over the same period last year. It is accounting for 18% of accounts outstanding for loans to the economy. However, the implementation still has many obstacles and many enterprises have complained when they could not approach credit sources in accordance to satisfy their demands.

Mr Lê Quang Thành, CEO of Sun Feed Joint Stock Company, said that one of the main reasons is high cost increases price, in that financial cost is very high. To have 100 vnd profit, the breeding enterprise has to spend 220 vnd in capital. If the bank rate is about 10% per year, the financial structure accounts for 50% of the production cost.

Besides that, Mr. Thành also told that the livestock industry in Vietnam has not adopted high technology yet so it gets low productivity, epidemic diseases that make the banks afraid to place fund for enterprises. However, to improve this situation and step up to modernize breeding and production base, enterprises need a long term source of funds. In fact, enterprise that have high reputation will get placement of funds over 7 years, for the rest, banks only issue loans in short term from 6 months to 3 years. While in countries which have developed livestock industry such as USA and Denmark, enterprises are allowed loans over 30 years and pay back by depreciation in production.

Along with the 2 above problems, he was very angry when talking about the lending mechanism of banks because it has many complicated procedures and required to have collateral assets, even enterprises have to do lots of documents to prove that assets are qualified as collateral. Moreover, common facts that breeding enterprises don’t have collateral assets but many banks don’t accept domestic animals as collateral or some banks just take 20% of the total value of these animals. Therefore, Mr.Thành made a calculation that to loan 100 vnd capital in cash, enterprises need to have 500 vnd other capital assets in order to put up as security. In fact, many enterprises in other agricultural industries have the same problems.

According to Dr. Nguyễn Đỗ Anh Tuấn, Director of the Institute of Policy and Strategy for Agriculture and Rural Development, access to credit still has difficulties so it causes many obstacles related to attracting investment in the agricultural sector as well as limiting the productive efficiency of the enterprises.

Change from production thinking

From the above problems, many enterprises are keen to have a clear and reasonable credit policy, while improving, simplifying the process of accessing capital, particularly on mortgage procedures , collateral, adjusting those entitled to preferential loans ... Notably, the enterprises have expressed desire that banks will set lower lending rates in agriculture.

Mr. Nguyễn Xuân Mai, Deputy General Director of Minh Tien Coffee .,PTE said that enterprises are looking forward to the State, and the banking industry continuing to have appropriate policies to promote the development of small and medium enterprises (SME) with flexibility credit packages, thereby improving production efficiency for enterprises and farmers. On the other hand, Mr. Phạm Thanh Hùng, Chairman and CEO of Ba Huan Company Limited Hanoi suggested, the problems of creating funding for agricultural development need to prioritise for fresh agricultural investment, and fresh production. So, in the next time, the banking industry needs to adopt policies to support pilot funding for fresh agricultural production, which not only shows concern for the agricultural sector but also the trend to help enterprises towards exports, enhancing added value, and increasing credit quality.

However, besides the help from the bank, according to Dr. Nguyen Duc Kien, Vice Chairman of the Economic Committee of Congress, farmers and agricultural businesses still do not have awareness of participation in the value chain of the product in order to share the risk with the bank. Whenever losing seasons, enterprises must advance the red book to find funds from banks. The issue here is to have a share, putting thinking Industrial production in agriculture. If the only question requiring credit institutions is to reduce interest rates, reduce criteria and conditions for loans is in fact non-transparent, unfair to the banking industry, because the banks are also enterprises and they need to gain more profits.

In fact, banks have concentrated effort to provide credit for agricultural sector and rural areas, because this is a promising sector, have large capital needs. But even small-scale, fragmented development, the bank is required to move cautiously. Therefore, the change needs more effort from many sides toward common development goals.