Despite banks making moves to lower annual interest rates by up to 1.5% whilst simultaneously offering a range of support packages, many businesses have no need for loans in the current climate due to the consumption market facing plenty of difficulties.

The ongoing novel coronavirus (COVID-19) epidemic is casting a long shadow over the global economy, including Vietnam, with increasingly complicated developments leading to negative impacts on production, business activities, and people's lives.

A range of enterprises have been weakened by the epidemic with numerous firms fighting for their survival. This has led experts to state that the COVID-19 epidemic is testing the durability and endurance of businesses.

In spite of no complete statistics regarding the number of companies affected by the disease, the banking industry, a sector which is generally considered to be the "backbone" of the national economy, has devised a score of solutions to join with businesses in a bid to remove some of the challenges facing them.

Many banks have put forth scenarios and launched a range of programs aimed at offering interest rate incentives, loan interest waivers, along with reductions and fresh loan packages as a means of solving difficulties for enterprises and allowing them to save themselves.

According to statistics released by the State Bank of Vietnam (SBV), despite the launch of business support credit packages, the credit growth of the entire banking system for the year has reached a mere 0.1%, in comparison with last year’s figure of 0.85%, the lowest growth rate in a six-year period. 

Local firms face up to downturn

The Department for Private Economic Development under the Prime Minister's Administrative Reform Advisory Council has recently released a report examining the impacts of the COVID-19 on production and business activities.

The report is based on a survey of 1,200 enterprises from a variety of fields such as agriculture, industry, and services, which shows that the COVID-19 epidemic has a very serious impact on the various businesses activities of enterprises.

Survey results indicate that nearly 74% of all firms believe that they are at risk of bankruptcy if the COVID-19 epidemic lasts for longer than six months. This is due to the potential for revenue to fall to a level where they can’t cover operating costs, salary for workers, and interest payments for bank loans.

The passivity of businesses partly reflects the limited capacity of small and medium-sized enterprises, whilst also being seen as an early warning indicator for crisis scenarios that may occur in the wake of the epidemic, the report says.

Nguyen Ngoc Anh, Director of Omega Tour Company, says at present the company has had no tours booked for either March or April, while the firm still has to manage hundreds of millions of VND each month for the purpose of insurance, staff salary, and operating expenses.

"We now have to cut 30% of our staff and half their salary," Ngoc Anh adds.

Meanwhile, Cuong Huynh Commercial Service Company says almost 40 of their big cars have not been in operation since the Lunar New Year festival, known locally as Tet, leading to hundreds of drivers and employees being given no work.

Banks suffer negative impacts

Due to the unpredictable nature of the epidemic, bank leaders have no forecast as to when the COVID-19 epidemic will come to an end, whilst the nation’s major trading partners such as the EU, the Republic of Korea, and the United States are continuing to witness a drastic upswing in terms of the number of new COVID-19 cases. With Vietnam being a country that relies on both imports and exports, the nation is at a disadvantage when the flow of bank loans used for export payments are disrupted due to the COVID-19.

Because of these difficulties, credit growth during the first two months of the year surged by less than VND5,000 billion.

According to Nguyen Quoc Hung, Director General of the SBV Credit Department, the relatively low credit growth seen during the first few months of the year indicates that businesses are facing up to the difficulties caused by the COVID-19 epidemic, leading them to operate on a smaller scale where possible.

A recent research report carried out by SSI Securities evaluates that the banking sector will be negatively affected in the short term due to the swift global spread of the COVID-19. Therefore, in addition to slowing down credit growth, there remains concerns about the high risk of bad debts.

According to financial expert Can Van Luc, credit growth of only 0.1% indicates that the credit demand of the national economy remains very low, largely as a result of the current epidemic. This has caused plenty of enterprises to either narrow or halt production as they have no demand for bank loans.

Credit growth is therefore anticipated to continue facing difficulties over the coming months as the epidemic situation remains complicated with no signs of halting, Luc notes.