Mar 18, 2013

Vietnam - Lacking capital, businesses look daggers at SCIC

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VietNamNet Bridge – If the State Capital Investment Corporation (SCIC) only does the simple work of depositing the state’s money at banks for profit, it would be better for it to get dissolved.

SCIC, the powerful state’s corporation, has been facing the heavy criticism from the public after it released the 2012 finance report showing that it deposited trillions of dong worth of capital at banks for profit.

Vietnamese businesses have been thirsty for capital. A report by the HCM City Business Association showed that up to 64 percent of businesses find it difficult to access bank loans, or have to borrow capital at the sky high interest rates of 18-21 percent.

The State Bank of Vietnam has announced that the lending interest rate has been slashed to 12 percent per annum. However, since banks only target big enterprises, the majority of businesses still cannot access the 12 percent per annum bank loans.

Meanwhile, SCIC in 2012 deposited VND20 trillion worth of the state’s capital at banks, which allowed it make profit in an easy way and helped “fatten” banks.

A banker said that the huge sum of capital alone would be enough to bring the profit of hundreds of billions of dong to the banks. In principle, this is demand deposit, i.e. depositors may take back money at any time. However, the “rich institutions” rarely withdraw money. Therefore, the banks may enjoy the margin profit of up to 20 percent in this case.

Prior to that, in 2011, SCIC deposited VND4,227 billion to enjoy the interest rate of 3-14 percent per annum. In 2010, it deposited VND7,199 billion at the interest rates of 2.4-11.2 percent per annum.

Dr. Nguyen Minh Phong, a well-known Vietnamese economist, has affirmed that it’s quite an abnormal thing for SCIC, which is authorized by the state to make investment in enterprises, make money just by depositing state’s money.

SCIC receives capital from the State and then deposits the capital at state owned banks. The state owned banks then use the capital to buy government bonds. As such, the state has to pay interests for the state’s capital itself.

Phong said it’s understandable why SCIC did this. Making deposit money at banks for profit is obviously the easiest and safest way to make profit and preserve the state’s capital.

The current laws stipulate that SCIC, as the investor of the state’s capital, has to preserve the state’s capital, which means that the SCIC’s leadership must not lose the state’s capital while making investment.

Therefore, SCIC dare not take venture investments. It has just either injected capital in profitable and safe business fields, such as dairy production (Vinamilk), or deposited money at banks, which surely can bring profits. However, these are not the business fields where the state needs to invest in.

In 2012, SCIC got VND1,568 billion from the interests of the deposits at commercial banks and VND1.001 billion from Vinamilk, a leading dairy producer in Vietnam. As such, commercial banks and “milk cows” brought two thirds of the total turnover of SCIC.

Meanwhile, SCIC should be the finance institution which pioneers in making investment in new and risky business fields, which would create favorable conditions for the development of the national economy, science and technology. One of the most important tasks of SCIC is to make investment in the high technology sector.

Compiled by Thu Uyen

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