26/06/2024

Flexible loan policies are needed to maintain production.

In 2023, enterprises faced many challenges, leading to a reduction in production and downsizing of business operations. Business efficiency also suffered a severe decline. In the first quarter of 2024, there are signs of recovery in the export market, including textile and garment products. Along with a decrease in bank interest rates, businesses are expected to increase their borrowing demand. However, many businesses struggle to access these loans and need measures to facilitate timely financial support for their production and business activities. To address this issue, Vietnam Textile and Fashion Magazine discussed with Mr. Le Tien Truong, Chairman of the Board of Directors of Vietnam National Textile and Garment Group (Vinatex).

Mr Le Tien Truong, Chairman of the Board of Directors of Vinatex

  • What is your assessment of the current difficulties that textile and garment exporters face in accessing loans?

First of all, the difficulty in accessing loans originates from the poor business performance in 2023 of textile and garment enterprises, particularly yarn and weaving enterprises. Therefore, commercial banks, with regulated standards, will review loan requests more strictly than in previous years.

However, we should also reconsider the situation in 2023. For the first time in 30 years, textile and garment exports decreased by over 10% compared to the previous year, even during the COVID-19 pandemic or the economic crisis in Asia and the global economic crisis, textile export has never decreased so drastically.

The decline of over 10% in export turnover resulted in job shortages, but more importantly, a global unit price decline led to the very poor business performance of textile and garment companies in 2023 compared to previous years. Particularly for yarn enterprises, these difficulties have continued from July 2022 to the present and are clearly reflected in the financial reports of 2023. This is the main reason why yarn enterprises are finding it difficult to access bank loans.

  • How does the difficulty in accessing loans affect the operations of enterprises in the yarn industry, Mr. Chairman?

The global yarn industry experienced a downturn in 2023. Yarn manufacturers in China, Bangladesh, and other countries faced difficulties, not just in Vietnam, due to low demand. This is a unique situation for the yarn industry.

However, in the first quarter of 2024, we have seen a more positive outlook in the yarn market. While the industry is not yet profitable overall, the level of losses has decreased by 90% compared to the first quarter of 2023. The market is recovering, demand is gradually increasing, and textile exports grow over 10% compared to the same period last year. This is the time to recover the losses from 2023. To recover, enterprises urgently need cooperation and loans from credit institutions and banks to implement production.

As a result of the poor business performance in 2023, the credit funding trend for 2024 is expected to be lower than in 2023. Specifically for the yarn industry, credit in 2023 was also lower than in 2022, but due to low total demand in 2023, that low funding could still maintain normal production. However, in 2024, yarn manufacturers are only approved for a credit limit 20% lower than in 2023, so when the market warms up, enterprises fall into a shortage of working capital to import raw materials and organize production. If we do not accompany enterprises with specific policies at this time, especially for yarn enterprises, we will miss the recovery opportunity of the yarn industry. Yarn manufacturers will naturally face compounded difficulties when production is narrowed down, and the opportunity to recoup the losses of 2023 will be even further away.

  • So, what solutions do we need to enable enterprises to access bank loans and simultaneously facilitate the credit flow of the entire economy, Mr. Chairman?

When we have identified 2023 as a particularly difficult year with unusual market movements that no one could have predicted, we also need flexible policies, especially at this time.

The lesson learned from 2020, when the COVID-19 pandemic emerged, many preferential credit policies and tax reductions from the Government were effective, helping enterprises overcome the difficulties, preventing bankruptcy, and offering a chance to recover. The year 2021 was a year of strong recovery for the textile and garment enterprises, a year with peak profits for the entire industry.

Because of many fluctuations and crises, the economy in 2022 and 2023 faced difficulties, and the textile industry also struggled. However, this does not mean the textile-garment market disappeared. Therefore, supporting businesses to overcome this difficult period in order to retain the industry, maintain jobs, and keep market share is necessary to create conditions and opportunities to recover.

With a scale of 10 million yarn spindles, the yarn industry in Vietnam is also a large-scale industry, among the top 5 in the world, currently employing 150,000 workers, with annual wage payments of about $1 billion, electricity costs about $500 million /year, and other expenses in Vietnam about $600 million/year. If we do not timely recover the yarn industry, we will lose the ability to dominate the market. This is because countries around the world such as China, Bangladesh, India, and others are ready to fill the gap in yarn supply that Vietnam has lost.

Therefore, during this period, commercial banks, with the management of the Central Bank, should adopt a policy of supporting businesses by working closely with them to analyze their individual situations. In this way, it can be seen that the Return on Sales and the number of orders of each company is improving better than last year. Instead of evaluating credit limits based on the poor business performance of 2023 and cutting them by 20-25%, banks should assess credit limits based on a company’s potential for recovery and the profitability of individual orders. Currently, some banks have cut credit limits by 16-17%, while others have reduced 30-40%. This approach makes it very difficult for businesses to recover.

Similar to the Vietnam National Textile and Garment Group, we have efficient enterprises but also have units that only produce yarn products. As a result, they face more difficulties when the market fluctuates. Therefore, we hope to have a common credit package for the whole Group so that good enterprises can share with enterprises that are still in difficulties, thereby together taking advantage of business opportunities that are showing signs of recovery. This year, Vinatex forecasts that the minimum growth rate of the yarn industry will be around 10% compared to last year, which means that working capital will need to increase by at least 10% compared to last year, not be cut by 20% as announced at the beginning of 2024.

Thank you for your attention!

Reporters

Translated from the article published in the May 2024 issue of Textile-Garment and Fashion Vietnam Magazine.

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