The decade-long disease of Vietnamese businesses
Part 1: Businesses’ production depending on bank loans

VietNamNet Bridge – The serious diseases suffered by Vietnamese businesses over the last decade still have not been treated well.

Vo Tri Thanh, Deputy Head of the Central Institute of Economics Management (CIEM), has warned about the imbalance of the capital structure of Vietnamese businesses. He said while foreign businesses use up to 30 percent of their profits for re-investment, Vietnamese enterprises have been totally relying on bank loans.

Nguyen Xuan Thanh from Fulbright Economics Teaching Program agrees, saying that the ratio of accounts payable on stockholder equity of Vietnamese listed businesses is 1.53, much higher than that in the US (1.2) and China (1.06).

The figures have been found from survey on 647 Vietnamese listed companies in the second quarter of 2012, not including banks and finance companies.

Economists first gave warnings about the enterprises’ overly high percentage of borrowed money in the total working capital in early 2000s. The “financial lever” proves to be a double edge knife for businesses.

And when Vietnam has to face crisis, the dark side of the “financial lever” has bared itself: the overly high bank loan interest rates plus stagnant production both have pushed a lot of businesses, including the well known Binh An Seafood Company, into the verge of bankruptcy.

Thanh has found that real estate, power and material enterprises prove to be the ones which have the highest ratios of debts on stockholder equity, while farm produce processing and consumer goods enterprises have the lowest ratios.

This is a clear proof that shows the last development stage of the Vietnam’s national economy which was associated with the “real estate investment wave”.

Not only private businesses, state owned enterprises have also been heavily indebted with the ratio of debt on stockholder equity at 1.71, according to the Ministry of Finance.

Especially, conglomerates and general corporations have been found as the enterprises with the highest ratios of debts on stockholder equity. The ratios are 4.26 for the Electricity of Vietnam, 8.85 percent for the Song Da Crporation, 6.36 percent for HUD Group, 6.29 percent for Petrolimex (petroleum importer and distributor) and 4.27 percent for Vinalines (shipping corporation).

In order to satisfy the enterprises’ increasingly high demand for capital, commercial banks have been unceasingly expanding their networks and increasing chartered capital.

By the end of 2011, the total chartered capital of the banking system had increased by nine times over the end of 2004. The ratio of outstanding loans on GDP in Vietnam has also been increasing from 40 percent in 2000s to 130 percent by 2010 – a galloping increase if compared with that of the Philippines, Indonesia, Thailand and Malaysia.

The easy access to bank loans then encouraged domestic enterprises to push up their investment in many business fields, including the risky ones such as real estate or stocks. As a result, the businesses have sunk when the real estate and stock markets got frozen.

Once businesses fell into insolvency, banks have also suffered, because they have to face irrecoverable loans. The figures about the bad debt ratio of the Vietnamese banking system vary. However, Thanh believes that the bad debts have been “hidden” by banks to make their finance reports polished, and that the actual bad debt ratios are higher than the reported figures.

VOV Online on August 21 reported that Vietnam’s bad debt ratio is 8.6-10 percent, which, according to Governor of the State Bank Nguyen Van Binh, is still outside of the danger list, but is really alarming.

Compiled by C. V

Part 2: Businesses rush to follow multi-field business model