Lower interest rates: Business capital absorption remains weak.

(Baonghean)To alleviate difficulties for businesses and support the market, in implementing Resolution 13/NQ-CP, the State Bank of Vietnam has continuously and significantly reduced interest rates to ease the pressure of borrowing costs for businesses. However, in the context of a weak economy, declining purchasing power, large inventories, etc., the ability of businesses to absorb capital remains weak.

Visiting the industrial parks (IPs) of the province: Nam Cam, Bac Vinh, and Nghi Phu, one can clearly see the difficulties in business operations. Generally, all three IPs are quiet and lack the usual vibrancy. While some units are still trying to maintain production, many factories have closed down silently, their grounds covered in grass and dust.



With difficult market conditions, businesses are reducing their need for loans to invest in production.

Mr. Nguyen Dinh Sinh, Director of Austdoor Nghe An Joint Stock Company (located in Nghi Phu Industrial Park), shared: "Recently, bank loan interest rates have decreased, but the difficult economic situation and weak customer purchasing power mean that businesses are not borrowing much capital. There were times when interest rates were high, with our company having to borrow at up to 21.3% per year. Currently, it has decreased to 13% per year, but we are hesitant to borrow more for production investment. In previous years, we needed 6-7 billion VND in loans for production, but this year we only borrowed 3 billion VND. Currently, the real estate market is frozen, urban apartment projects have stopped, and our Austdoor roller doors and plastic doors are selling slowly. While other production costs have increased, we cannot raise product prices. In the first seven months of 2012, revenue only reached 60% of the planned target."

Ms. Nguyen Thi Loan – Deputy Director of Viet My Co., Ltd. (located in Nghi Phu Industrial Park) confided: "In previous years, production and business were favorable, with interest rates sometimes reaching as high as 23% per year, yet the demand for capital remained high. Now, with loans at a low interest rate of 12% per year, the demand for loans from businesses is very low because there is no market for our products. Our company specializes in producing NPK fertilizers and trading them, primarily serving the agricultural and rural markets. However, increasingly complex weather patterns, natural disasters, and unstable agricultural production, along with crop failures, are causing problems. Furthermore, the high cost of input materials like fertilizers, coupled with low output prices for agricultural products, is driving farmers to cut back on investment. The company regularly provides fertilizer loans to farmers at the beginning of the production season, with repayment at the end (without interest), but consumption remains weak. This year, fertilizer sales are only about 60% compared to the same period last year, resulting in significant inventory buildup." The bank is offering us low-interest loans, but the company is hesitant to borrow more because there is no market for our products.

Sharing the same sentiment, Mr. Le Xuan Dat – Director of Trung Do Granite Tile Factory (in Bac Vinh Industrial Park) said: "This year has been extremely difficult, especially for the construction industry. Tile manufacturers like ours face many pressures; the domestic market is very difficult to access, there is fierce competition from cheap Chinese tiles, input material prices have increased, electricity prices have risen, and fuel prices have increased, driving up transportation costs…"

Meanwhile, output has to decrease due to large inventories, requiring the factory to sell off stock to support its staff and maintain machinery. In the first seven months of 2012, Trung Do Granite Tile Factory sold nearly 1 million roof tiles and 1.2 million square meters of paving tiles, a 20% decrease compared to the same period last year. Low sales volume and limited production have led to lower demand for loans. While interest rate reductions have facilitated significant cost cuts, in the current context, with unsold goods, even cheap capital is difficult to absorb. This year, we only hope to break even – that would be good enough!

Interest rates have fallen, but what businesses need more right now is a consumer market and outlets for their products. Only when purchasing power increases and the flow of goods stabilizes will production be boosted and businesses' ability to absorb capital increase.

Quynh Lan