High inventory levels pose challenges to cash flow

Many commercial banks have reduced their interest rates after the State Bank of Vietnam (SBV) decided to cut lending rates to a record low in more than three years to help local businesses iron out snags in their current economic difficulties.

However, there is growing concern among the business community about the flow of capital when the bad debt ratio remains rather high.

By far, 15 of Vietnam’s 39 commercial banks have reduced their annual short-term loan interest rates to 7.5%, while 14 others have cut their rates for non-term loans to less than 2% per year.

Nevertheless, domestic businesses still find it difficult to access bank loans due to strict requirements from lenders.

Truong Hoang Lan, Director of the Tien Phong Commercial Joint Stock Bank’s capital department, says that many commercial banks are unwilling to offer loans to loss-making businesses and those with bad debts. Therefore, the flow of low-cost loans will only reach businesses that can operate with efficiency.

Banks prefer providing incentive loans to businesses that can make a profit to contribute to social welfare, Lan says, adding that those with poor performance will be on the long waiting list.

Dr. Tran Dinh Thien, Head of the Vietnam Economics Institute, says banks are also like businesses and don’t want to face bad debts owned by inefficient borrowers.

In addition, he says, many businesses do not have feasible plans or solutions to earn the trust of bankers.

Dr. Thien argues that up to April 2013, the number of dissolved businesses doubled from two years ago. Both banks and businesses are in a financial fix.

The crux of the matter is how to devise effective measures to cope with the situation but it’s no easy task for them all, he said.

High inventories like a stumbling block to the flow of cash, have led to a high ratio of bad debts for banks and a limit on credit growth.