The Vietnamese Government has continued its monetary-tightening policies, which will likely lead to further shortage of capital, said Le Van Hinh of Vietnam Report.
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| Interest rates, exchange rates pose risks to companies |
According to Hinh, Vietnamese companies access capital through two main channels: bank loans and selling shares. However, over the past two years, there has been a sharp drop in share prices. This, he says, forces businesses to seek capital through other means and banks are the biggest lenders.
Because up to 80% of bussiness debt to banks is short-term, enterprises encounter a high level of risk in terms of interest and exchange rates, he added.
In recent years, and particularly since late 2010, local commercial joint stock banks have applied floating interest rates, based on the movements of the market. Current lending interest rates have topped 20%.
A survey by the Vietnam Chamber of Commerce and Industry in 2010 showed that only 20% of local firms could bear yearly interest rates at the level of 16-20%. Many businesses said that they will scale down their operation if rates continue to go up.
A number of companies have chosen to borrow USD at the interest rate of 5%. However, USD loans may bring risks of their own, Hinh warned.
Fluctuations in exchange rates this month have shown that they too remain a great concern for companies, he said, predicting that the latter part of the year and early 2012 will be a very sensitive time for the business community.
According to Hinh, in order to manage these risks, companies need to rearrange their operations and adopt on risk mitigation measures. Companies should also consider cutting labour and costs, and try to look for cheap and stable financial sources.
Mergers and acquisitions or seeking new partners could be seen as a viable way for companies to restructure in difficult circumstances, he added.
