In a proposal sent to the prime minister in mid-August, the Board for Private Economic Development Research (IV Board) of the government’s Advisory Council for Administrative Procedure Reform proposed to loosen the credit ceiling for small- and medium-sized enterprises (SMEs). Such tightening through the State Bank of Vietnam (SBV) not only affects real estate businesses but also affects the capital flows of local manufacturers.

Many difficulties in approaching credit have been cited by the IV Board after regular surveys across 16 associations, including those involved in steel, timber, electronics, motor vehicles, logistics, and the Vietnam Association of Seafood Exporters and Producers (VASEP).

Exporters are still having to contend with supply chain struggles and input costs, le Toan

Nguyen Hoai Nam, deputy general secretary of VASEP, said that despite the positive performance of seafood producers and export value in the first half of the year, they are facing a lot of woes.

“In the context that the supply chains are still interrupted and costs of transport and materials are rising, if the selling price of seafood goes up we cannot maintain export markets, and inventory is increased. In this country, credit from banks is tightening. Unless enterprises get loans from banks, they cannot continue operations,” said Nam.

The situation is reportedly common across most sectors. In construction firms, the lack of capital and tightening of credit loans are causing plenty of burdens.

“In construction, outstanding debts are common due to the complicated procedures of acceptance and disbursement process. Without approaching credit loans from banks, contractors have no money to advance for workers and materials while waiting for the disbursement of investors,” said Nguyen Quoc Hiep, chairman of the Vietnam Association of Construction Contractors.

Representatives of business associations are struggling with the lack of working capital due to the prolonged pandemic and very little revenues while still having to pay debts, bank loan interest, and other fees to maintain and operate the business, in addition to the increase of input costs for production.

Nam of VASEP said that they are facing a decline in the number of output orders. The tightening of global financial status and supply chain disruptions has reduced the growth prospects of the global economy, so demand for Vietnamese exports is much lower in a lot of markets.

“Moreover, currencies like the yen and euro are struggling at present, so enterprises exporting to the EU or Japan are suffering disadvantages due to receiving foreign currencies that are sharply devaluating,” added Nam.

According to the Ministry of Planning and Investment (MPI), the private sector is on the cusp of recovery. The number of newly-established enterprises and enterprises returning to operation increased sharply in the first seven months of 2022 at about 89,400 (up 17.9 per cent on year), and over 44,300 enterprises resumed operations (up 49.7 per cent on year), respectively. However, they still require a raft of support.

Nam added that SMEs find it challenging to approach credit loans as their collateral is low, and banks often do not give priority to them. Cash flow is also small and unstable, making businesses unable to meet the conditions of banks to access credit loans, preferential loans, and other supports for SMEs.

“Even for businesses that are not struggling with those issues, in the current context of the SBV tightly controlling credit growth targets, commercial banks do not have any more room for businesses’ credit loans,” Nam explained.

The IV Board reported to the government that many SMEs and business households that are accounting for 98 per cent of total in-run businesses will go bankrupt due to having no money for employees and no capital for operations and investment.

“SMEs play the role of satellite businesses supporting large ones in the process of implementing key projects of the country,” said Truong Gia Binh, chairman of FPT Group and head of the IV Board.

“Therefore, it is necessary to control the inflation rate in a reasonable way to loosen the credit room and support the businesses. Otherwise, there will be a scenario that these businesses will go bankrupt next year, leading to an economic recession. That is more dangerous than inflation,” emphasised Binh.

According to the latest data announced by the SBV, credit growth of the entire banking industry as of end-July reached 9.27 per cent compared to the end of 2021 and increased 16.61 per cent on-year, much higher than the 6.47 per cent in the first seven months of last year

The IV Board proposed the government continue maintaining supporting policies for businesses in terms of taxes, fees, and credits, to reduce the cost burden on businesses. In addition, economic recovery programmes should be accelerated the implementation and disbursement, including the additional interest compensation package of VND40 trillion ($1.74 billion) and the infrastructure development investment package worth VND113 trillion ($4.9 billion) to create better conditions for economic recovery.

This board also proposed the SBV to raise the ceiling of credit growth for commercial banks to promote the production and service sectors.