Last year alone $3.65 billion was borrowed, a 9.7 per cent rise from 2013, nearly $3.5 billion in cash and the rest in goods. — Photo caffef.vn

Compiled

In May 2014 the State Bank of Viet Nam issued a circular to tighten the Government's control over foreign-sourced loans.

Circular No 12/2014/TT-NHNN on May 15, 2014 applicable to entities not belonging to the government, says lenders and borrowers can negotiate and determine fees and interest rates, though, in certain circumstances, the central bank will set a ceiling for the latter.

Foreign loans can be obtained for one of two purposes: to implement business plans or projects of borrowers or companies in which borrowers invest directly (applicable to medium- and long-term loans) or to restructure borrowers' existing foreign debts.

But these stringent conditions have not managed to deter businesses from borrowing from foreign financial institutions and business partners.

According to statistics from the central bank, 750 HCM City-based companies had obtained medium- and long-term loans from abroad worth US$6.25 billion as of the end of last year. Foreign firms accounted for 66 per cent of the amount.

Last year alone $3.65 billion was borrowed, a 9.7 per cent rise from 2013, nearly $3.5 billion in cash and the rest in goods.

A majority of the loans were taken by FDI firms from their parent companies abroad. Most of the loans by domestic companies were from their foreign partners in the form of deferred payments for the purchase of machinery or for investment in the company.

The question is why do local firms want to borrow abroad?

It is because of low interest rates and simple procedures.

Though interest rates charged by Vietnamese banks for loans in both dong and US dollars have plummeted, they remain much higher than for offshore loans.

The lending rate for short-term dong loans is 4-7 per cent, and for medium- and long-term loans, 5.5-7 per cent.

On US dollar loans, it is only around 2.5 per cent but few companies manage to get foreign currency loans because it takes forever and the requirements and procedures are tortuous.

For instance, businesses that want to borrow must demonstrate that they would have enough foreign currency in future to repay.

Foreign loans carry interest rates of a mere 1-2 per cent.

Commenting upon the advantages of borrowing overseas, analysts point out that it is necessary in the context that the country has a huge need for funds for socio-economic development.

Over the years offshore borrowings have helped the country meet its medium- and long-term funding needs for production and business activities.

But the analysts caution against risks involved with borrowing abroad.

The majority of these loans are short-term (less than a year) and do not have to be registered with the central bank. When they expire, they are easily renewed without having to report to authorities. Thus, it is difficult for official agencies to regulate the loans or even keep track.

Any increase in foreign loans also means a rise in national debt, which affects the safety indexes related to it.

The analysts thus stress the need to establish limits for overseas loans to ensure foreign debt remains within a safe threshold in line with the Law on Public Debt Management and international norms.

For the central bank's part, it says it keeps a close eye on local firms' overseas borrowings as well as their payments so that it can take timely measures to keep the borrowings within permissible levels.

The central bank also plans to work with the Ministry of Finance and other relevant agencies to help the Government establish limits for external commercial borrowings.

Flood of foreign goods

Nearly 20 Japanese and Thai eateries line a two-kilometre stretch of Nguyen Tri Phuong Street in HCM City's District 10.

The owner of a chain of Thai food shops on this street said he had opened four shops within three months and planned to open more because of the increasing demand.

A similar situation is also seen in the Thu Duc University Village where Thai and Japanese eateries have mushroomed and many are full of customers.

Besides chains of small eateries, famous Thai and Japanese restaurant chains have also been cropping up around the city. They include Thai Express, Thai Elephant, Gusto Thai, Shabu Shabu, Sashimi, and Takoyaki.

The presence of so many foreign restaurants in HCM City and other cities around the country in recent years begs the question: why do many Vietnamese opt to eat Japanese and Thai food?

Most of these eateries cook their food in open-plan kitchens, reassuring customers about hygiene and food quality.

Their prices are very reasonable, a big factor especially for young people. Some dishes cost a mere VND5,000-7,000.

The owners of these places also focus on promoting their brand names as well as products online, including on social websites like muachung, nhommua and giare.

But the foreign invasion is not restricted to food. Thailand and Japan, for instance, also sell a lot of fruits, electronic products, home appliances and others to Viet Nam.

According to the Ministry of Agriculture and Rural Development, in the first quarter of this year Viet Nam imported fruits worth US$103 million from Thailand. This does not include large volumes of Thai fruit imported through informal trade.

The wave of foreign goods arriving in Viet Nam is likely to become a tsunami because of the country's integration commitments, according to analysts, especially when the ASEAN Economic Community (AEC) comes into being possibly this year.

Then, goods and persons can move freely across borders within the bloc, and consumers in Viet Nam will be spoilt for choice when it comes to cheap products of good quality.

Of course, the flip side of this is that Vietnamese goods will face intense competition right at home and local businesses will have to make greater efforts to cope.

The analysts also expressed concern that most Vietnamese companies had yet to prepare for dealing with those new challenges.

Only a few large firms have outlined strategies to cope with the imminent competitive pressures caused by the influx of foreign goods. Most small companies remain blissfully unaware of what awaits.

But some economists are hopeful, saying that while domestic businesses cannot hope to avoid the competitive pressures they have a pretty good chance of doing well.

But for that they need to improve their competitiveness by renovating the way they do business and join hands to set up product chains and distribution networks and other logistics services to cut costs and improve efficiency, they say.

The analysts said producers needed to closely co-operate with retailers, particularly domestic, to fully utilise local strengths.

If they did all this they could survive, they said. — VNS