Not right time for businesses to borrow
This year is still challenging for Vietnam as well as its enterprises due to the bleak global outlook, according to experts at an international business luncheon held by the Canadian Chamber of Commerce in Vietnam this week. The Saigon Times Daily spoke with Sumit Dutta, president and CEO of HSBC Bank (Vietnam) Ltd., as one of the luncheon’s speakers, on the topic. Excerpts follow.
The Saigon Times Daily: In a forecast, HSBC said that Vietnam’s inflation was expected to be 12% this year. What do you think about this, and is it still an optimistic forecast?
- Sumit Dutta: We think 12% is feasible. I think the Government is aiming for the single-digit rate. They can do it, but it is difficult.
I think it’s very good if you’ve got 12%, and when comparing Vietnam with emerging markets, such as Indonesia, Thailand, Malaysia, 12% is acceptable. It’s normal to have high inflation in high-growth markets.
HSBC also projected more stability for Vietnam dong this year, with the forex rate estimated at VND21,500 to the dollar at the end of the year. What is the basis for that forecast?
- The Government has demonstrated they’re very keen on keeping the dong exchange rate stable. And they have strong commitment to keep the exchange rate stable. However, the factor impacting the exchange rate the most is the big trade deficit, and a lot of imports are happening, meaning you have to pay dollars. It’s important that we continue pushing exports.
One thing the State Bank of Vietnam did last year was to allow banks to continue lending to export-oriented units. It’s a good thing. Vietnam encouraged those companies to export to earn dollars. As long as the export growth is continued, the pressure on the dong will be reduced.
But the global economy slowdown still continues. A number of Vietnamese companies find it hard to get contracts in this year. So, it may put pressure on dong, isn’t it?
- I understand that exports will be difficult to do in 2012 because there may be slowdown in demand. In the U.S. and Europe (as Vietnam’s biggest importers), maybe the demand is slowing down, and they are importing less from Vietnam.
But you know, on Thursday, you look at China, Sri Lanka, Bangladesh and Thailand, all of these countries are competing with Vietnam in exporting. Can Vietnam remain and become more competitive? We know in China on Thursday, the average labor cost is going up very sharply. Vietnam has low-cost production advantage. I think it has a lot of opportunities.
The Government needs to encourage exporters. The Government should tell the businesses that ‘If you do export, I will give you more benefits.’ Businesses are very smart, and they will find the way to be competitive. But you have to push them to export. That’s what the Government has to look at. I think the Government has done it already, encouraging export companies.
The inflation is expected to ease significantly this year, so the State Bank of Vietnam may cut the interest rate further. So, should Vietnamese companies have easier access to low-cost loans this year?
- I don’t think that low-interest loan access will become easy. Even inflation is at 12%, I think the best we can hope for is a lending rate of 16-17% for loans in Vietnam dong. So, I would say Vietnamese companies should try and maximize efficiency; they should not borrow too much money. Even 16-17% is expensive.
So, my recommendation would be that Vietnamese companies reduce borrowing. Don’t borrow unless you have to. Be careful. Don’t borrow too much, cut your cost. It’s not the right time.
We must, in 2012, be careful. It could be that you’re running your business very well. You see the demand for your products and you can borrow with 17% interest rate and make money. But, supposed that Europe tumbles into recession, your business will be affected. So, be safe, keep enough cash. Be aware that things may happen globally and could change your business.
Reported by Thu Nguyet