The director of a bank in HCM City says lenders have no plans as of now to increase loan interest rates, though they find it difficult to cut capital costs since deposit interest rates are tending to increase.

But he said loans are only given to customers in "good health" to reduce risks and avoid bad debts.

The competition to lend to borrowers with a good credit history is intense, and banks are vying with each other to offer them attractive interest rates.

They are even ready to lend at below deposit interest rates to prime borrowers, most of them being strong companies.

The common rates now were 6-7 per cent for loans with a three-month tenor.

But analysts said banks are lending at various rates depending on the creditworthiness of the borrowers.

Thus, those more likely to default have to borrow at higher rates.

Many bank executives said with the credit market becoming highly competitive, risks came with the territory.

Besides, most of the least creditworthy customers are small and medium-sized enterprises (SMEs), which play a very crucial role in the economy.

According to the Ministry of Planning and Investment, Viet Nam now has 435,800 SMEs, or 97 per cent of all companies.

Because of the prolonged global economic crisis, the SMEs' registered capital fell sharply from VND569.5 trillion (US$25.5 billion) in 2008 to VND430.6 trillion now.

To support them, the Government has rolled out several incentives to create favourable conditions for them to develop, including tax breaks and easy credit.

But not all SMEs can borrow from banks'preferential credit packages.

One of the main problems is red tape, which makes it very hard for small enterprises, including household businesses, to borrow.

Another important reason is their low efficiency, which prevents them from finding good projects.

History also shows that banks have struggled to recover loans from small businesses, increasing their bad debts in the process, and so are understandably wary.

But the biggest problem is their inability to provide assets for mortgage, something on which banks insist.

Credit institutions also often lack the information required to appraise the health of an SME or its actual capital needs.

To enable SMEs to borrow, experts stressed the need for the Government to simplify administrative procedures.

They also said banks had to start providing unsecured loans to support, especially when they had transparent accounts and feasible projects.

The SMEs for their part should be transparent with their information to make banks feel secure about lending, they said.

Gov't to sell stakes in large firms

The Government will sell out its stake in the Viet Nam Diary Products Joint Stock Company (Vinamilk) this year and in nine other large State-owned enterprises (SOEs) next year.

This is part of a plan to divest its holdings in 12 SOEs that was announced by Dang Quyet Tien, a Ministry of Finance official.

He said there would be a roadmap for the stake sales to safeguard the interest of the Government, spur equity market growth and avoid an adverse impact on its pullout from smaller businesses.

The 12 companies are Bao Minh Insurance Corporation in which the Government has a 50.7 per cent stake, FPT Corporation and FPT Telecom (50.2 per cent), Viet Nam Infrastructure Investment and Development Corporation (47.6 per cent), Ha Giang Mineral and Mechanics Joint Stock Company (46.6 per cent), Vinamilk (45.1 per cent), Viet Nam National Reinsurance Corporation (40.4 per cent), Tien Phong Plastics Joint Stock Company (37.1 per cent), Binh Minh Plastics Joint Stock Company (38.4 per cent), Samimexco (49.9 Per cent), Sai Gon Beer-Alcohol-Beverage Corporation (Sabeco - 89.59 per cent) and Ha Noi Alcohol Beer and Beverage Company (Habeco - 81.79 per cent).

Among others, the Government plans to speed up its pullout from the two companies in which it has the biggest stakes and are also the country's two biggest brewers, Habeco based in Ha Noi and Sabeco in HCM City.

Sabeco is the biggest Vietnamese beer maker, producing 1.3 billion litres a year and having a 46 per cent market share. Habeco is the second largest, brewing 657 million litres.

The schedule for listing Sabeco and Habeco has already been announced, with the former to go public and get on the HOSE board in December this year and the latter in the first quarter of 2017.

Many Vietnamese and foreign investors have already expressed interest in becoming strategic shareholders of the two beer companies, with the beer market attracting more foreign interest than most other sectors thanks to its growth prospects.

Vietnamese spent at least $3.4 billion on beer in 2015, excluding imported beers, a 41 per cent jump from 2010.

But Sabeco and Habeco are also of great interest to foreign investors because they own massive assets like land and nation-wide distribution networks.

For instance, Sabeco's breweries alone add up to 573,718 square metres of land.

Habeco has properties in many cities and provinces like Ha Noi and northern provinces of Vinh Phuc, Phu Tho, Bac Ninh and Hung Yen.

Can foreign investors acquire majority stakes in the two brewers? There is a catch.

According to the latest law, real estate is a conditional business meaning foreign investors can hold no more than 49 per cent in a property company.

This means foreign investors can buy stakes in them only if the two relinquish their real estate trading business, which is in their business licence.

All this means the Government could struggle somewhat to sell its shares in the two brewers.

Banks main stay of company bonds

In June last year Masan Consumer Holdings (MCH), a wholly-owned subsidiary of Masan Group Corporation (MSN), successfully issued five-year bonds worth VND9 trillion ($412.8 million).

This was the largest ever private sector corporate bond issuance in Viet Nam.

The buyers were Vietcombank, which bought VND5.4 trillion worth, and other local banks like VIB (VND1 trillion) and BIDV (VND900 billion).

Vietcombank Securities Company arranged the deal.

Masan is one of several companies to issue bonds in the last few years, and the main buyers have been banks.

By late June this year many commercial banks had invested considerable sums of money in corporate bonds.

Vietinbank has invested VND54.11 trillion, Vietcombank, VND13.72 trillion and BIDV, nearly VND25.96 trillion.

The main reason apparently for banks' interest in buying corporate bonds is that their securities firms can manage the bond issuance for fees that are usually equivalent 2 per cent of the issue.

Besides, it is easier for the banks to sell the bonds than loans.

For the issuing companies too, it is relatively straightforward to sell their bonds to the banks compared to other investors.

This is because corporate bonds have moderate liquidity and the buyers need to have deep pockets. — VNS