Temporary trouble
While there has been a constant increase in the disbursement of preferential loans thanks o the State's 4% interest rate subsidy following Decision 131 by the State Bank of Vietnam (SBV) on January 23, 2009, businesses are concerned over whether or not they can take out these loans to pay off their previous high-interest loans.

At present, nearly VND200,000 billion in low-interest loans has been disbursed, but no one knows precisely how these loans have been used or which projects they have been funding. In fact, there us currently no information about how much has been used to pay off old loans and how much has been invested in expanding production in order to prevent a further economic turndown.

Not rolling over loan
According to the SBV’s regulations, businesses are not allowed to use subsidised loans to pay off old debts or roll over loans. If not, they will have to pay back the subsidised interest and be punished in line with the law.

Up to now, the SBV has not found any businesses that have abused the subsidised loan scheme while commercial banks remain hesitant to provide any information about such cases. It’s worth noting that both commercial banks and businesses want to roll over loans. For business, it means able to pay off their old debts and expand business operations. For commercial banks, it means a welcome reduction in bad debts.

According to Le Duc Thuy, Chairman of the National Finance Monitoring Committee and former governor of the SBV, although the credit sector grew at just 1.28 percent in the first two months of this year, reaching between VND16,000-VND20,000 billion, the total disbursement of subsidised loans amounted to nearly VND150,000 billion. This has highlighted the fact that credit growth did not keep up with the disbursement rate of the Government’s stimulus package.

It is a fact that many borrowers, including both businesses and individuals, can pay off their old debts and continue to take out new loans with State subsidies. Businesses benefit by paying off their previous high-interest loans, while getting subsidised loans to maintain their business operations.

Allowing businesses to roll loans over?
While voicing his concern over the use of the stimulus package to roll over loans, Mr. Thuy said. “I do not know whether or not businesses are doing this, I still support it.”

Former Trade Minister Truong Dinh Tuyen also expressed his support for the idea of roll-overs and had previously said that he would ask the Government to allow businesses use these loans in this way.

How to deal with this?
With the State's 4 percent interest rate subsidy as part of the VND17,000 billion stimulus package, businesses are enjoying huge preferential loans worth around VND620,000 billion in total. It is essential to adjust regulations on the use of subsidised loans so that they are brought to life in an effective and lawful manner.

As usual, when a new policy is issued, it may create new problems. Right after the SBV’s Decision 131 was issued, financial companies were not listed to receive subsidised loans. However, a few days later, officials implementing the Decision saw a need to offer these loans for financial companies in order to ensure equality between credit organisations and businesses. Thanks to the timely response of experts and mass media, the SBV decided to add financial companies to its eligible recipients.

Thanks to State’s subsidies, businesses can access short-term loans to expand their production. Nevertheless, some businesses suffer from old debts and difficulties finding markets due to the global economic meltdown, so they hesitate to take out new loans to invest in their business operations. Others fail to qualify and cannot access the loans at all.

In the light of this, it is necessary to adjust the SBV’ regulations and allow businesses to roll over loans in a bid to assist them in developing production. Perhaps, it is also important to stipulate that businesses must use a certain amount of subsidised loans to invest in upgrading their own operations.