Interest rates down, capital absorption still slow

(Baonghean) - Although interest rates have dropped to their lowest level in recent years, market purchasing power and inventories have not improved, which has hindered investment to promote production and business, limiting businesses' ability to absorb capital.

Through research at some commercial banks, it is shown that banks still have difficulty lending because the demand for capital is not high. Mr. Phan Viet Phong - Deputy Director of Vietcombank Trung Do Branch shared: "Currently, the Branch's short-term lending interest rate is from 7% - 8%/year, long-term 10%/year. Interest rates have dropped sharply, but the number of new customers is very small, many businesses have not found effective production and business plans for investment. Thus, interest rates are not a factor affecting business investment, but the problem mainly depends on the internal nature of the business. Banks really want to push capital out but must also ensure safety and cannot lend at all costs. In 2014, the Central Bank assigned Trung Do Branch a loan balance of 970 billion VND, up to now the loan balance has reached 920 billion VND. We are trying to exploit the market, looking for qualified customers to lend to". Like this unit, many banks, instead of sitting at the transaction office as before, now assign credit officers to each ward and commune to proactively search for customers, assigning targets for credit officers to exploit customers, but lending activities are still sluggish.

Production of export flooring at Song Thang Enterprise (Nghi Phu Small Industrial Park - Vinh City).

Similarly, at Saigon Commercial Joint Stock Bank Branch, the current lending interest rate ranges from 7% - 12%/year (depending on the subject), but the increase in outstanding loans is not significant, the main customers are business households, individuals, small and medium enterprises. Nghe An Investment and Development Joint Stock Commercial Bank has just launched preferential credit packages to attract disbursement of short-term credit products at the end of the year. For retail: packages for production and business, consumption, car purchase, home purchase, loan interest rate from 7.8%/year or higher. For business loans: loans for production and business (term under 6 months) interest rate from 5.5% - 7.5%/year. This low interest rate stimulates businesses with fast capital turnover, businesses doing trade, import and export, especially serving goods for the Lunar New Year. Ms. Le Thi Mong Ly - Deputy Director of Nghe An Joint Stock Commercial Bank for Investment and Development said: "In order to share difficulties and support businesses, the bank offers lower interest rates than the market so that businesses can increase their investment capacity; for construction and installation businesses, quickly complete projects and recover capital at the end of the year; for trading businesses, increase their stock of goods for Tet. After more than 2 weeks of implementing low-interest credit packages, outstanding loans have increased significantly."

Lower interest rates, at the same time as the fourth quarter is the peak business season at the end of the year, are an opportunity for banks to disburse capital, but the output of capital depends on the market's consumption of goods. Meanwhile, the market's purchasing power is still weak, leading to the demand for investment in production and business of enterprises not increasing, so the ability to absorb capital is limited. Viet My Company Limited specializes in producing all kinds of NPK fertilizers for the domestic and foreign markets. In previous years, the average consumption was over 20,000 tons of all kinds of NPK/year, but this year the consumption output is less than 15,000 tons/year. The output has decreased, so the investment capital demand of enterprises is not much. Ms. Nguyen Thi Loan - Deputy Director of the Company said: In previous years, preparing for the winter-spring crop production, the company needed a large amount of capital to buy input materials, now the consumption output is low, leading to low investment capital. Therefore, although the interest rate is lower and more “breathable”, but the consumption of goods is slow, the capital turnover is slow, the company does not know what to borrow capital for. The company is often invited by banks to borrow capital with preferential interest rates of 6%/year, but it does not borrow because there is no need. If in previous years, the company always borrowed capital of about 20 billion VND, now the capital demand is only 5 billion VND. With the characteristics of a fertilizer production unit, we often lend to people without interest, and only collect money at the end of the season, but when there are natural disasters and risks, farmers lose crops, it is very difficult to collect debts.

Mr. Nguyen Thai Son - Deputy Director of Song Thang Enterprise confided: “Production and business are increasingly difficult, the consumption market is poor, combined with fierce competition pressure from many small-scale production units, the market share is fragmented. As a unit specializing in the production of export flooring and wooden furniture for domestic consumption, this year is still not over, products serving the domestic market are consumed very slowly. Up to this point, there are still 30 - 40% of products in inventory, but we still have to maintain production to create jobs for workers, hoping that in 2015 the market consumption will increase, the output will be more favorable, stimulating the unit's capital absorption capacity. Currently, bank interest rates for businesses are low, but in this context, we are very cautious in borrowing capital to expand production and business”.

In fact, the capital absorption capacity of enterprises in particular and the economy in general this year is still difficult, even though bank interest rates have decreased sharply. However, the banking sector has made efforts to reduce short-term lending interest rates to support enterprises in overcoming difficulties, but it should also consider further reducing medium and long-term lending interest rates to create more favorable conditions for enterprises to use loans. By the end of October 2014, the total mobilized capital of banks in the province reached 63,824 billion VND, an increase of 13.8% compared to the beginning of the year. Total outstanding loans reached 105,299 billion VND, an increase of 9.7% compared to the beginning of the year. Thus, the credit growth rate has improved but the increase is still low, not reaching expectations.

Market developments show that, nowadays, interest rates are no longer the deciding factor in businesses borrowing capital, but rather the effectiveness of production plans and whether the products produced can be consumed or not. These are extremely important factors that determine the ability of businesses to absorb capital. This issue does not only depend on the solutions of the banking system, the removal of difficulties by industry levels, but also depends largely on market demand.

Article and photos:Quynh Lan