For VIP customers or those with long-matured deposits, banks are offering interest rates as high as 5% per year to retain their deposits, while new customers are receiving rates below 4%. Paradoxically, many businesses, especially those in real estate, are in need of capital to invest in projects they intend to "hold," yet acquiring loans proves to be a challenging task.
JOURNALIST: - Sir, why is the flow of capital still restricted?
Dr. LÊ ĐẠT CHÍ: - Here, I won't delve into solutions for promoting credit through operational policies but will analyze why real estate businesses require capital while banks are reluctant to lend. In reality, both banks and real estate businesses are engaged in a complex interplay.
We often discuss solutions to stimulate credit growth, such as reducing interest rates, injecting funds, and expanding risk coefficients, to facilitate easier access to loans for real estate companies. However, while these suggestions are easy to articulate, implementing them poses significant challenges, leading to debates at conferences between the two sides. Banks insist that business owners must exhibit a strong financial standing, while real estate businesses advocate for more lenient lending practices.
From the financial perspective of real estate businesses, let me illustrate with a simple example: in the past, during the buoyant real estate market when profits were easily realized, business owners would invest VND 1 billion and secure an additional VND 1 billion loan from the bank, resulting in a VND 2 billion asset or project. At that time, with the project's value reaching VND 4 billion, real estate businesses reaped significant benefits. However, in the current "frozen" real estate market, the project's value has dwindled to only VND 500 million. Consequently, real estate businesses find themselves financially constrained, as VND 500 million is insufficient to repay the bank debt.
The current narrative revolves around real estate businesses urging banks to continue lending for project completion, as there is potential for the project's value to rise again upon completion. The rationale is that if the business turns a profit, the bank stands to gain without losing capital. However, the banks, also regarded as "masters" in this dynamic, are equally cautious. They emphasize that injecting additional capital poses even greater risks. Banks suggest that if the business owner contributes more capital, the bank will then disburse the loan further. This stance is understandable, given that these two "masters" have been engaging in this intricate dance for over half a year, with numerous meetings failing to reach a consensus.
- In your opinion, sir, what is the solution to align the interests of businesses and banks to reinvigorate projects and revive the real estate market?
- From the bank's standpoint, it is not unreasonable for them to request the business owner, who is also the project owner, to infuse additional capital to share in potential risks. Only then does the bank have a foundation to continue lending. However, if the business calculates that investing another VND 1 billion will only bring the asset's value to VND 1.5 billion, essentially securing the creditor with a VND 1 billion debt, they might reject this proposition. In technical terms, this is known as refusing to contribute equity capital.
From a business perspective, when the owner no longer holds capital value in the company, the principle dictates that the asset belongs to the creditors. This implies that the remaining VND 500 million of the project is now the property of the bank. Injecting more capital at this point would only lead to accumulating bad debt for the bank. Consequently, businesses are pressuring banks to safeguard their interests, causing further impasses in project disbursements. Achieving mutual alignment between businesses and banks requires a robust legal solution.
- Sir, in some countries facing similar challenges, businesses are compelled to secure additional capital from their families at any cost to obtain loans from banks and salvage their projects. What is your perspective on this matter?
- One can envision a scenario where business owners perceive their responsibility as limited to capital contributions and debt obligations. Hence, when borrowing was easily accessible, they expanded their investments in holding assets. The rationale behind this is that the increased value of these assets translates into benefits for corporate shareholders rather than creditors. In the example we discussed earlier, when the real estate market experiences a downturn, and the asset's value is only VND 500 million against a debt obligation of VND 1 billion, the risk now rests with the creditor. In certain countries, criminal liability is employed to compel business owners of this type to infuse additional capital to ensure operations for creditors.
In Vietnam, the only recourse for banks is to petition for the bankruptcy of the borrowing enterprise (though it's not easy) or demonstrate that the management of the enterprise has violated legal provisions. Only then can the owner seek to reclaim private assets within the family or held by individuals outside and add them to the enterprise.
Therefore, in my opinion, real estate business owners should consider a solution, which involves managing personal assets both domestically and abroad to meet debt obligations. Sufficient time has passed for both business and bank owners to collaborate on finding a resolution. Hence, business owners cannot invoke the excuse of limited liability under the Enterprise Law to relinquish all assets of the business to creditors for disposal.
- Thank you very much.
