Businesses looking forward to lower interest rates due to heavy debt burden

	The SBV suddenly reduces interest rates of required reserves
	State Bank of Vietnam cuts some interest rates
	"Excess capital", interest rates decrease widely

Many businesses are burdened with huge debts and facing difficulties in repaying them. Photo: Internet

Huge debt

According to Hoang Anh Gia Lai International Agriculture Joint Stock Company - HAGL Agrico’s consolidated financial statements of the second quarter, in six months, HAGL Agrico reached VND1,166 billion, up 49% over the same period. EAT was more than VND10 billion, while in the same period of 2019, net losses were more than VND751 billion. In 2020, HAGL Agrico set a revenue target of VND4,307 billion, 2.3 times higher than the revenue in 2019, equivalent to a pre-tax profit of VND566 billion. Thus, in the first half of the year, this enterprise has achieved 27% of the revenue target and 2% of the profit before tax target.

However, due to investment in agriculture, this company is suffering large debts. As of the end of June 30, the enterprise’s total debt was VND12,380 billion, 1.35 times higher than its equity. Compared to the beginning of the year, HAGL Agrico’s debt increased by VND3,175 billion. The debt increased sharply due to increased loans from the parent company Hoang Anh Gia Lai and Thadi Agricultural Processing and Distribution Joint Stock Company, a unit of Truong Hai Auto Joint Stock Company (Thaco).

Similarly, in the first six months of the year, CIENCO4 Group Joint Stock Company’s net revenue and net profit hit VND951 billion and VND33 billion respectively, down 8% in revenue and 56% in profit compared to the same period last year. Notably, at the end of the second quarter, CIENCO4's total assets were nearly VND7,354 billion, a slight increase of 4% compared to the beginning of the year, but liabilities increased to more than VND6,072 billion, up 4% compared to the beginning of the year. Equity is just more than VND1,281 billion, meaning that the debt of this enterprise accounts for 83% of total assets, 4.7 times higher than its equity.

Another enterprise that has a huge debt burden is Hoa Phat Group. By the end of June, this enterprise recorded more than VND60,063 billion of liabilities, up 11% compared to the beginning of the year. Of which, the total debt was more than VND42,600 billion, rising by 16% compared to the beginning of the year and accounting for 38% of total assets. Loans increased highly and the interest expenses of VND1,004 billion in the first half of the year of this business were also higher than the figure of VND936 billion in 2019, 2.5 times higher than the same period. Thus, Hoa Phat Group has to pay on average nearly VND5.6 billion of interest per day.

Many businesses in the sectors most strongly affected by Covid-19 are also miserable because of their large debts. In tourism, for example, the financial statements in the second quarter of Vietnam Travel and Marketing Transport Joint Stock Company (Vietravel) showed that accumulated in six months, its revenue was only more than VND895 billion, down sharply from VND3,346 billion in the same period last year, making the six-month after-tax profit negative to VND65 billion. However, looking at the debts of this company, Vietravel still has a short-term loan balance of VND228 billion at four banks and a long-term loan balance of VND714 billion (borrowing from banks and issuing bonds). Therefore, in the first half of this year, the interest expenses of this enterprise exceeded VND41.5 billion, an increase of 7.5 times over the same period last year.

Looking forward to support

The economy has faced trouble because of the pandemic, which has made it difficult for businesses to turn cash flow into paying debts, making outstanding loans increase. Notably, most of these are old outstanding loans that enterprises could not pay, causing interest expenses to erode profits, adding up to bulging debts. Therefore, the financial statements of banks in the second quarter all showed the NPL ratio had increased significantly, but the credit growth rate was very slow.

Huynh Phan Phuong Hoa, Deputy General Director of Vietravel, said the number of tourists cancelling tours was very large, and 60-80% of the employees were taking unpaid leave. Therefore, businesses want to be supported with capital to survive, and receive a policy of reducing interest rates and taxes. According to Tran Thanh Son, Chairman of Phu Tho Tourism Association, authorities must build policies to facilitate enterprises to reschedule debts, reduce interest rates and expand lending limits for reputable units.

In fact, since the beginning of the year, due to the complex developments of the pandemic, the Government has instructed management agencies to sharply reduce interest rates and taxes for businesses. As for interest rates, current lending interest rate has decreased from 2-4% compared to last year. However, accessing capital for many businesses has not been easy. Therefore, the Governor of the State Bank has asked banks to cut operating costs by reducing salaries, bonuses, and profits to make resources to reduce interest rates substantially with both existing and new loans to support businesses and people.

Facing these instructions, experts believe the interest rate level would decrease more in the future, because banks have lowered deposit rates to reduce interest rates. Additionally, according to experts of BVSC Securities Company, the State Bank will step up removal of barriers to help businesses access capital after the Covid-19 pandemic, loosen credit room for banks, and even re-grant capital for public investment projects with high spread.