Banking and financial expert Dr Can Van Luc said that in addition to traditional credit, in 2020, many other sources of capital will become the main mobilisation channel for businesses.
According to Dr Luc, there is currently an imbalance between capital mobilisation channel for production and business activities of businesses.
Businesses at the present time have at least six capital flows that they can call for capital to serve the needs of production and business.
The first is from the budget. Business can access this source through funds such as fund for small and medium enterprises (SMEs), SME credit guarantee fund, and some other fund.
The second source is capital from the partners.
The third source is foreign capital. It can be said that 2019 is the year the foreign investment funds have paid much attention to Vietnamese businesses. Those mobilising from one to three billion US dollars are fairly popular. This is a feasible and important source of capital for startups. In addition, financial institutions and banks have also mobilised from this source. The typical case is Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV). So far, BIDV has completed issuing more than 603 million shares, equivalent to 15 percent of the charter capital after selling stake to its South Korean partner: KEB Hana Bank. After deducting issuance costs, the total net revenue of BIDV’s offering is 20.208 trillion dong.
The fourth capital source is credit and guarantee.
The fifth capital source is the capital mobilised from the capital market through shares and bonds. This is also an extremely important source of capital and there is a lot of room left. However, Vietnamese businesses are not yet pay attention to this channel.
The last source of capital is equity and contributed capital. In 2020, businesses need to expand capital mobilisation channels to escape from traditional channels.
In the recent time, the government has issued many priority and preferential policies for startups and SMEs. Assessing this source of capital, Dr Luc said that under the direction of the government, BIDV and the SME Development Fund have organised a signing ceremony of a framework contract on indirect lending, thereby creating favourable conditions for Vietnamese business to access to capital at leading preferential costs. Specifically, with the support from this fund, SMEs in Vietnam have a great opportunity to access low-cost capital. For medium and long-term loans, the lending interest rate is only six percent per annum, fixed throughout the loan period of up to seven years.
This preferential capital focuses businesses in areas such as creative startups, industry links and value chains. However, the resources for this capital are very limited.
Dr Luc sees that the stock and bond markets are very important, but Vietnamese business are not yet interested in this channel. The main reason for this, according to Dr Luc, is that medium and long-term capital for the economy currently still heavily depends on the banking system. While the demand for medium and long-term capital of business to expand production and business is very huge, the capital market has not yet developed in both size and quality to meet this demand.
Meanwhile, medium and long-term capital still account for a fairly large proportion of about 50.6 percent of total outstanding credit. This situation has been putting a very huge pressure and risk to the system of credit institutions in particular. To satisfy the need for medium and long-term capital of businesses in particular and the economy in general, the development of the stock market is indispensable, thereby gradually reducing the dependence on bank loans.
The main reason for the imbalance is that businesses are not used to using a long-term capital and making long-term development plans. In addition, businesses are still hesitant to disclose information and their financial statements remain unclear. Along with that, businesses have not yet met the conditions for bond issuance.
Dr Luc believed that bond market will be the main capital mobilisation channel for businesses in 2020. In the first 10 months of 2019 alone, the total amount of corporate bond issuance was up to 178.732 trillion dong (including the lots issued to the public, but excluding private placements carried out in the first three months of the year as they have not been announced). In particular, commercial banks are still the biggest issuer with the total issuance value reaching more than 79.411 trillion dong (accounting for 44.4%), followed by real estate companies (61.269 trillion dong, accounting for 34.3%), and infrastructure development companies, securities companies and other companies, etc.
The above data showed that the scale of capital mobilisation via this channel is still very small (equivalent to just a medium-scaled bank), and it is insignificant on the scale of the economy.
As shared by Dr Luc, to change the capital flow structure, the government, industries and the State Bank of Vietnam (SBV) need to effectively carry out the SME Support Law, as well as the promulgated support policies. In addition, the Business Guarantee Fund needs to be promoted in better coordination between funds, credit institutions, associations, local governments and SME Development Fund under the new model should also be promoted.
In addition, the SBV needs to consider the mechanism of the ceiling lending interest rate for businesses. Keeping a balance in developing the financial market (especially stock market, bond market, microfinance, investment funds, etc.) to reduce dependence on bank loans and increase long-term capital source. Developing of digital finance and digital banking is also a method to diversify investment capital mobilisation channels in 2020.
