Businesses advised to diversify capital sources in new context
Participants at a May 7 workshop in Hanoi recommended that Vietnamese businesses diversify capital sources funding their activities in the new context instead of being over-reliant on the banking system.
Addressing the workshop, Chairman of the Economist Club Dang Duc Thanh said enterprises are operating in a volatile and uncertain environment amid global climate change, unpredictable epidemics and pandemics like SARS, Ebola, and COVID-19, and other challenges such as terrorism, lack of water resources and food, and cyber insecurity. Given this, they have significant demand for medium- and long-term capital.
However, he pointed out, their own capital accounts for just 20-30% while the remainder comes from credit from commercial banks, which are often unable to meet their demand for medium- and long-term capital.
The enforcement of free trade agreements (FTAs), especially new-generation agreements like the EU-Vietnam FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), will create substantial opportunities for Vietnamese enterprises to boost exports and attract more foreign investment, both direct and indirect. COVID-19 has also triggered a shift in production and supply chains to developing countries like Vietnam.
Local companies therefore need ready capital to seize investment and business opportunities, Thanh said.
Experts at the workshop noted that Vietnamese enterprises are over-reliant on bank loans while the credit market is currently “overloaded” since it has to concurrently provide short-, medium-, and long-term capital for businesses and the economy.
As the strength of Vietnamese banks remains modest, to ensure capital supply, they must borrow short-term capital, mostly from individual clients, to issue medium- and long-term loans, which poses considerable risk to the banks themselves as well as to businesses and the economy, they added.
Nguyen Hoang Phuong, Director of Business Training and Support at the Ho Chi Minh City Securities Corporation, said that listing on the Unlisted Public Company Market (UPCoM) and raising finance from the stock market are considered effective measures for companies with capital of less than VND30 billion (US$1.3 million).
He also identified angel investors and venture capital funds as capital sources.
Le Anh Tu, a senior advisor at PwC Vietnam, said that due to the pandemic, enterprises around the world are now tending to seek capital from non-bank sources like the stock and bond markets or via crowd-funding and crypto currencies.
To meet demand in the post-pandemic context, the financial services sector has been introducing swift changes. Many fintech companies are also emerging and directly competing with banks. Traditional banks themselves have also had to quickly adapt to new trends to stay competitive, the workshop heard.