Vietnam - Support for struggling businesses

The Government is applying a series of measures in an attempt to help companies survive the prolonged economic crisis, including adjustments in taxation, interest rates on bank loans, administrative procedures and capital sources.

From January 1 to March 21, at least 2,217 enterprises closed and 9,726 enterprises stopped operation before scheduled, an increase of 6 per cent compared with the same period last year, according to a report from the Government.

Cao Sy Kiem, chairman of the Small- and Medium-Sized Enterprise Association, said that a lack of capital, high volume of inventory, high lending interest rates and a paralysed real-estate market, as well as other factors, resulted in a bankruptcy rate of 40 per cent of Vietnamese businesses during this period.

Besides the high number of small-sized businesses failing, quite a few large companies have also been affected, particularly those in real estate and consumer-goods production, he added.

Tran Dinh Thien, director of the Viet Nam Institute of Economics, said most companies have had to slash production, which has badly affected the economy.

He said the Government's main task was to curb inflation and draw on all available resources to prevent further bankruptcies, closures or reduced operations.

Gov't efforts

The Government, together with ministries, branches and the central bank, has developed measures to help companies.

The Prime Minister issued Decision No 54/2011/QD-TTg on the extension of corporate income-tax payments in 2011 for enterprises that have a large number of employees or are involved in specific sectors.

The finance ministry estimates that there will be more than 160,000 enterprises benefiting from the extension of corporate income-tax payments, with a total of nearly VND8 trillion (US$38.4 million) expected to be received by companies.

The ministry has also set up a task force to develop a plan to help companies. Participants include the National Institute of Finance Policies and Strategies, the General Taxation Department, General Customs Department, Department of Corporate Finance, and the Department of State Budget and the State Securities Commission.

Finance Minister Vuong Dinh Hue said companies must give clear explanations about their difficulties to aid the ministry in its plan.

Hue also said he had asked the Government to allow businesses to pay their corporate income tax in different phases.

In addition to these measures, the State Bank of Viet Nam (SBV) is also making great efforts to cut lending interest rates to support enterprises.

The SBV initially kept a 14 per cent cap on deposit interest rates for a prolonged period.

Thanks to this, several major commercial banks made slight cuts to their lending interest rates, from 22-24 per cent to 18-20 per cent per annum.

In the last six weeks, the central bank has slashed deposit interest rates twice, from 14 per cent to the current 12 per cent per year.

The central bank also signed Decision 693/QD-NHNN regarding re-financing, discounts and overnight interest rates on the inter-bank market.

Under this decision, the re-financing interest rate was set at 13 per cent per year, the discount interest rate at 11 per cent, and the overnight interest rate at 14 per cent.

SBV Governor Nguyen Van Binh said the central bank's efforts had paid off.

The lending interest rate has dropped by 2-3 per cent compared with the rates of last year's fourth quarter.

Binh said the interest rate on loans to prioritised industries would likely drop to between 13 and 16 per cent per year.

At a recent meeting with Binh, 14 leading commercial banks agreed with the central bank's policy to further cut lending interest rates.

Purse strings

The central bank has loosened the purse-strings for half of those previously placed on a restricted list of borrowers. It also loosened consumer credit to stimulate purchasing power in the economy.

To curb inflation and stabilise the macro-economy, the Government had previously tightened credit and placed the stock exchange, real estate and consumer areas on the restricted list of borrowers.

Now the central bank has both necessary and sufficient conditions, including improved liquidity at banks and lower inflation, to loosen credit in these areas.

Currently, housing prices have fallen to reasonable levels. Thus, loosening credit would help companies sell their apartments and complete their projects, which, in turn, would help other industries, such as cement, steel, construction, according to Binh.

In addition, the Ministry of Construction also plans to buy several commercial housing projects with prices averaging between VND15 million and 17 million per square metre.

This measure would allow real estate developers to sell their products, while at the same time reduce the amount of their bad debt at banks.

This would also allow the Government to set up a housing fund that would provide apartments or houses to people unable to buy property, according to Deputy Minister Nguyen Tran Nam.

The housing fund would be used to settle land clearance and resettlement issues during construction of public projects that involve the removal of residents from the area.

The housing would also be used for the head offices of State-run agencies. But most importantly, the housing fund would help regulate the market, Nam said.

Nguyen Trong Hieu, deputy director of the Ministry of Planning and Investment's Enterprises Development Department, said the investment ministry had asked the Government to allow it to establish an enterprise support fund.

The key objective of the fund is to give capital to effective enterprises or to companies in priority areas designated by the Government.

The money for the fund would be raised from various resources, including the State Budget, foreign loans and aid resources, Hieu said.

Although the Government has extended help to companies, experts have called on enterprises to review their business plans to ensure they are compatible with their financial capability.

VNS

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