High interest rates remain a business concern

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Forecasts of profitability of the banking system continue to grow satisfactorily. Picture: H.LINH.

Banks step up credit

In 2017, the banking sector has achieved positive results. Banks from the "giants" to small and medium reported “awesome” relative profits. Typically, the Bank for Investment and Development of Vietnam (BIDV) reached a profit of 8.800 billion VND, up 14.2% over the results of 2016 and exceeded 13.5% of the plan; Saigon - Hanoi Commercial Joint Stock Bank (SHB) achieved a pretax profit of 1,938 billion VND, up 66% compared to the past year and surpassing 11% of the plan; HCMC Development Commercial Joint Stock Bank (HDBank) earned 2,417 billion VND of pre-tax profit, double the same period last year, the highest ever.

Despite aggressive development of many retail-oriented services, the FY2010 Financial Market Review reported that credit income continued to account for a large proportion in total net income from business activities of credit institutions. The cause of credit has increased relatively evenly from the first months of the year. Specifically, net interest income from credit activities increased 33.1% compared to 2016, accounting for 79.1% of total net operating income (76.4% in 2016).

The cause of credit growth also comes from the fact that the banking system is more open to borrowing. Accordingly, from the beginning of 2017, the Government and the State Bank of Vietnam (SBV) have called for banks to reduce their operating expenses to reduce interest rates tohelp lowerinterest ratesby 0.5-1%. Even with the Government's prioritized development, interest rates are decreasing and businesses can borrow credit. In addition, banks are offering more concessional credit packages ofup to trillions of VND, helping businesses access capital easily. As a result, the World Bank's (WB) report, Vietnam's Access to Credit Index rose and raised from regional peers to 75/100, higher than the East Asia - Pacific regional average (57/100 points).

Talking more about this issue, leaders of the Asiatea Tea Company Limited (Asiatea) said that businesses have had a long time to build a close relationship with banks, plus the source of money regularly, the financial report specifically; Businesses are always provided with preferential interest rates of 3-4% for foreign currencies. Even with the large number of orders, businesses can borrow up to dozens of contractswith each contract forup to several billion VND, revolving continuously, helping businesses not to worry about the cost of production.

Businesses still complain

In the story shared with the Customs Newspaperbyleaders of a business specializing in fruit export-import, enterprises currently have to use their own capital by borrowing bank loans, or banks do not lend for new businessesbecause they have no prestige; Or companies have to borrow athigh interest rates because they do not belong to preferential policiesorpreferential bank. Even so, many start-up companies find it difficult to access loans because of high costs. According to experts, the cause of the situation is because banks are still "afraid" and "cautious" with enterprises, especially with the newly established companies, because many of themhave the bad business habit of ‘snatching’, by having financial statementsthatare not transparent, so the risk of causing a bad debt to the bank is very large.

Although difficult to get loans andwithhigh interest rates, businesses cannot do business without capital. Therefore, the report of the National Financial Supervisory Commission also pointed out, in 2017, although there is a large profit, enterprises do haveslightly increased financial leverage (debt/equity ratio) at 1.42 times, higher than 1.35 times in 2016. In particular, the debt/equity ratio of small and medium enterprises also reached the highest level since 2008, 1.2 times.

Mr. To Hoai Nam, Permanent Vice Chairman and Secretary General of Vietnam Association of Small and Medium Enterprises, said that small and medium enterprises still face many difficulties in accessing bank loans, 70% capital gain. According to Mr. Nam, the policy of banks is not really oriented to businesses, such as withcredit loans or preferential interest rates; interest rates are still focused on the priority enterprises.

Therefore, high interest rates remain a concern of enterprises, because the higher the debt ratio, the profit and capital must bear quite a lot of expenses to pay interest rates; so can big profit come from the business to pay more interest?

Central bank injects nearly US$573 mln to support liquidity The State Bank of Vietnam SBV made a net cash injection of 13 trillion VND 572 9 ...

Of course, from the above analysis, it is not possible to "round" the bank profits as a result of high interest rates of businesses, which is just one of the causes. Objectively speaking, the banking systemcredit policies are more attractive to the business community, the number of newly established companies in 2017 has soared to record high demand for capital, strong growth in consumer lending and the support from the economy has led businesses to seek more capital to push into production investment etc. Experts have predicted that the profitability of the banking system this year will continue to grow. Credit growth will remain stable as in 2017, while many banks have announced lower lending rates by around 0.5% since the beginning of the year; not to mention the lower interest rates are more support and balance.