Saturday, October 04, 2008

Vietnam SMEs facing massive bankruptcy

SME massive bankruptcy impossible?
08:37' 03/10/2008 (GMT+7)

VietNamNet Bridge – The State Bank of Vietnam (SBV), in its September 29 report on loans  to small and medium enterprises (SMEs), affirmed that a massive bankruptcy of SMEs will not occur. However, the conclusion has not been applauded by the Vietnam Association of SMEs.


The Credit Department under SBV stated in the report that SMEs have been developing well, while rejecting the possibility of a massive bankruptcy of the enterprises.


SBV said that only 3.8% of the 163,673 surveyed SMEs have difficulties, while only 1.42% of enterprises are facing the risk of losing investment capital.


The report was released after local mass media quoted experts and associations as saying that many SMEs are in danger of being dissolved due to the policy on monetary tightening, which is threatening the socio-economic development.


The report was made after considering the database provided by six state-owned banks, including Vietcombank (which has just shifted to operate as a joint stock bank), 31 joint stock banks, 33 foreign bank branches and joint venture banks.


Chairman of the Vietnam Association of SMEs, Cao Sy Kiem, has immediately rejected the survey’s result.


“The figure of 3.8% of SMEs facing difficulties is not the accurate figure,” Kiem said.


He went on to say that the figure of 3.8% proves to be unreasonable and too low, noting that there are many difficulties for SMEs: the lending interest rate being as high as 21% per annum, the loans being decreased by half as the result of policy on restraining the credit growth rate at 30%, and the input material prices increasing sharply.


Kiem also said that it is unreasonable to say that 73.2% of SMEs have been operating at a moderate level, since there are not so many enterprises that can operate in a normal track in such difficult conditions.


Regarding the conclusion that SMEs will not see the massive bankruptcy, Kiem said that a lot of enterprises are now at Death’s door, but they do not complain.


It is clear that a lot of SMEs cannot borrow money from banks, while it is hardly probable that the enterprises, which could access bank loans, would be able to pay back their bank debts.


“What should SMEs do to get the profit high enough to cover the overly high bank interest rates of 20-21% per annum?” he questioned, adding that SMEs have been experiencing a heap of difficulties.


Kiem has urged the State Bank of Vietnam to apply a more flexible credit policy, which allows them to continue providing loans to the enterprises, which are facing difficulties so that they are able to survive and develop. Meanwhile, the enterprises which have fallen into decay need to be dissolved soon so that banks can take back money.


Kiem said that the association of SMEs is going to make an appeal to the Government, suggesting some points that will help SMEs overcome their current difficulties:


First, the Government should allow SMEs that have the potential to develop to delay tax payments. Administrative procedures need to be eased in order to help increase opportunities for businesses.


Second, the Government should reserve capital specifically designed for SMEs to be sure that the SME sector can have sufficient capital to run their business.


“SMEs have been making up 30-40% of export turnover every year, 40% to GDP, while creating 50% of jobs. Saving SMEs means saving the national economy and settling social security problems,” Kiem said.