Loan interest expenses incease, causing hardship for firms

This is information based on the financial statements of the second quarter of 2023 of 1,026 public companies provided by FiinPro.

Specifically, businesses had to spend more than VND53.77 trillion on interest expenses in the first two quarters of this year.

The total of the 10 enterprises with the highest interest expense in the first half of 2023 reached nearly VND19 trillion, an increase of more than 47 percent over the same period last year, equivalent to the general increase of all enterprises.

The top five enterprises with the highest interest expenses all saw them surpassing VND1 trillion in the first half of this year.

Among the 10 enterprises mentioned above, the interest expense of Electricity Corporation 3 (EVNGENCO 3) saw the strongest increase - nearly doubling compared to the same period last year, reaching VND1.2 trillion.

Three out of 10 businesses with the highest interest expense in the first half of this year have cut debt. Specifically, the total loans and finance lease liabilities of EVNGENCO 3, Masan, and Vietnam Airlines at the end of the second quarter of 2023 decreased by 7 percent, 4 percent, and 1 percent, respectively, compared to the end of 2022.

At the conference to review the first six months of 2023 and implement the tasks for the last six months, Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu said that the State Bank had reduced operating interest rates four times in a row. By the end of June, the average deposit interest rates of new deposits in Vietnamese đồng of commercial banks decreased by about 1 percent per year compared to the end of 2022.

Some commercial banks have implemented incentive programs to reduce lending interest rates for new loans, with a reduction of about 0.5-3 percent per year, depending on the type of customer.

However, businesses are still burdened with interest costs of up to trillions of đồngon old loans.

Limit debt

According to data from FiinPro, the total short-term and long-term loans of 1026 businesses at the end of June 2023 only increased slightly by 4 percent compared to the beginning of the year, reaching more than VND1.55 quadrillion. Short-term loans increased by 11 percent but long-term loans decreased by 5 percent.

This shift shows that businesses have begun to avoid long-term loans.

In 2023, the SBV has set a credit growth target of 14 - 15 percent. But by the end of June, credit only increased by 4.03 percent - much lower than the growth of 9.4 percent in the same period last year. This was the lowest credit growth in 10 years.

The main reason for slow credit growth was weak economic demand, in both production and consumption.

Commercial transactions between businesses are also showing signs of weakening as the balance of payables decreases, the SBV said.

As of June 30, 2023, the total balance payables to sellers of 1,026 enterprises decreased by 5.5 percent compared to the beginning of this year, reaching nearly VND433 trillion. VinGroup, Vietnam Airlines, and Petrolimex were the three enterprises with the highest payables, all over VND20 trillion each.

Many businesses have chosen to offset debt with assets, shares, or even products to pay sellers, especially construction and real estate businesses.

Typically, Hoa Binh Construction approved the transfer of 88 real estate products from 2 investors, Novaland and Sungroup, in the first half of this year, to offset debts.

As of the end of July, the Purchasing Managers' Index (PMI) of Vietnam's manufacturing industry has seen 5 consecutive months below the threshold of 50 points. Although there was a recovery in July, the overall production activity of the country was still weakening.

Source: VNS