The general reason most businesses have sour results in the third quarter is high interest and cost of capital, large inventory. There are units who have to pay for financial cost 5 times as much as profit and inventory accounts for 60-87% of total assets.
Perhaps the most tragic are the seafood businesses who falls into a state of high financial expense and cost of capital that push profits down. Specifically, in the third quarter of this year, the Seafood Export-Import Cuu Long JSC (ACL) had after-tax profit of VND 2.1 billion, only 6.5% of that in the same period last year (VND 32 billion). Profit declined, but its financial expenses doubled its profit (VND 5.2 billion), of which, its borrowing cost was 5.1 billion.
Similarly, in the third quarter, the Nam Viet JSC (ANV) had after-tax profit of VND 5.5 billion, less than 25% of that of the third quarter of last year (VND 22.3 billion). Its financial expenses were up to VND 13 billion, not only higher than the same period, but also more than double its profit.
For the Ninh Hoa Sugar JSC (NHS), its after-tax profit in the third quarter was just over VND 3 billion, even not equal the fraction of that in the same period last year (over VND 54 billion). The cause of its profit decline is too-high cost of capital, accounted for 86% of its sales. In addition, its financial expenses also increased in comparison with the same period last year and more than five times its profit.
Also lost in this ‘cyclone’, not only profit corroded by financial expense, real estate enterprises also saddled with inventories. According to the third quarter financial report of listed companies, the list of lost real estate enterprise is quite long: Khang An Real Estate Company (KAC), Quoc Cuong Gia Lai (QCG), Van Phat Hung (VPH), Vietnam Real Estate Investment (VNI) ...
Difficulties compounded when many units with record inventories account for 60-87% of corporate assets. Specifically, Quoc Cuong Gia Lai’s inventory is more than VND 3,500 billion, Van Phat Hung’s is more than VND 1,300 billion, and Phat Dat’s is up to more than VND 4,400 billion. According to specialists, capital and financial expenses accumulated hugely in inventory. If those deadlock cannot be released, the businesses’ health will also be threatened.
"I have many projects at loss because of interest corrosion into the principal for four years. If this situation prolongs then the economy cannot recover even in 10 years. " lamented Lam Van Chuc, CEO of Phuc Duc Real Estate Company.
In the hot period of rising interest rates, he had a loan contract with interest of up to 25.4% a year. Although it has been ‘cooled’ somewhat, at the level of 15% a year, it is still too high, and is not suitable for business investment or manufacturing.
"The cost of financing is making business more stifle among numerous difficulties, in which lending rate is considered the most serious. In theory, this rate is decresing low down, but actually not low at all." analyzed Nguyen Van Thuan, Dean of Finance and Banking, HCMC Open University.
According to him, interest rate has, recently, been slightly reduced for new loans, and the old ones were also been adjusted, but not many. Therefore, the cost of financing, especially interest still puts enormous pressure on businesses.
He stated, that the Government are considering reducing interest rate, applying the ceiling lending rate is the first step to support businesses in reducing the cost of capital. However, besides the application of the ceiling interest rate for loans, enterprises must incur unofficial costs so the real interest rate remains high. “Another matter which is even more problematic is that the financial cost trapped in the mountain of inventory is huge.” said him.
According to Mr. Thuan, subsidizing interest rate can only remove a little fraction of the difficulty. At this time, it is pivotal to increase consumption level so enterprises can release inventory and recover production. If the consumption power is good, then even at loss but businesses have cash flow, and from these revenues they can amortize and rebalance financing, create conditions for the recovery process.
Mr. Thuan forecasts that the possibility of pulling down the interest rate to 12% at this time is a utopia. The reasonable threshold may be 14-15%, but adding cost will be slightly higher than this. “Obstructive inventory is a grave cause that make most businesses fatigue. Interest is mostly buried there, if they are unable to find output, the consequences will be very serious," he said.