High borrowing costs push Vietnamese businesses to seek new sources of capital

At a recent HUBA (Ho Chi Minh City Union of Business Associations) Entrepreneur Coffee program, economist Can Van Luc said there was little room for interest rates to fall significantly as the economy needs a large amount of capital to support its ambitious growth targets.

Banks are also competing with other investment channels, including gold, stocks, real estate, cryptocurrencies, and emerging investment activities, for deposits.

The pressure has become more apparent as credit growth has exceeded deposit growth every year over the past five years.

The cumulative gap between total outstanding loans and total deposits currently stands at around VND2.7 quadrillion (US$103.3 billion).

Therefore, the economy's capital needs cannot continue to rely heavily on the banking system, Luc said.

Capital should be channeled through a wider range of sources, while appropriate mechanisms are needed to ensure major infrastructure projects do not put additional pressure on credit for production and business.

"Eighteen key infrastructure projects, with a combined value of around VND700 trillion [$26.8 billion], are planned over the next three years and should be considered separately when allocating resources, creating more room for credit to other businesses and sectors," he said.

Nguyen Ngoc Hoa, chairman of the Ho Chi Minh City Union of Business Association, said the concern was not only a shortage of capital but also a lack of long-term funding.

"Businesses are short of long-term capital, while the banking system mainly meets working-capital needs. Therefore, we need to develop the capital market quickly to reduce pressure on bank credit," Hoa said.

Accelerating the equitization of state-owned enterprises, attracting capital from domestic and foreign investment funds, and making better use of financial resources across society would help expand funding channels, he said.

Businesses urged to diversify funding sources

The State Bank of Vietnam recently issued a document calling for lower lending rates and greater support for small and medium-sized businesses.

Tu Tien Phat, CEO of Asia Commercial Joint Stock Bank, said there was still room to provide credit to small and medium-sized enterprises. Banks have currently used only about two-thirds of their credit quotas and can continue supporting these businesses, he said.

For import-export businesses with foreign-currency revenues, companies could consider borrowing in U.S. dollars at interest rates of around 4 percent a year, Phat said.

Including exchange-rate fluctuations, the overall cost of capital could be around 6 percent.

Another option is to issue corporate bonds.

Banks can support businesses in issuing and investing in corporate bonds, Phat said, adding that five- to seven-year maturities would give businesses greater flexibility in managing their cash flow.

However, Nguyen Quoc Ky, chairman of the board of travel company Vietravel, warned that foreign-currency loans are not always a safe option.

For businesses with large foreign-currency debts, particularly in sectors such as aviation and tourism, exchange-rate fluctuations can significantly affect borrowing costs.

Businesses therefore need to carefully assess their ability to hedge currency risks before choosing U.S. dollar loans, Ky said.

Meanwhile, Lam Thuy Ai, CEO of agricultural company Mebi Farm, said businesses should determine which sources of capital are best suited to each stage of their development rather than simply pursuing the lowest-cost funding.

Businesses seeking long-term capital from investment funds or the stock market need to profesionalize their operations, improve transparency, and strengthen corporate governance, Ai said.