June 01, 2020 11:37

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Heavy credit reliance puts firms at high risk

16:21 | 16/05/2019

Amid stock and bond markets failing to meet expectations, the heavy reliance of enterprises on bank credit is putting them at risk, experts have warned.

heavy credit reliance puts firms at high risk

Economic expert Can Van Luc.

Capital is considered one of the most significant factors that facilitate the business and operation of local firms. Economic expert Can Van Luc raised concerns that firms have been unbalanced in mobilizing financial sources as they remain heavily reliant on loans from one certain channel – commercial banks, whilst the development of the stock and bond markets is yet to reflect its true potential.

This poses a considerable risk for domestic businesses, Luc claimed.

Firms, which are increasingly reliant on commercial loans, are able to deal with high risk, in some cases, even facing insolvency due to unpredicted market fluctuations, Luc said, suggesting that local firms review their financial capacity, particularly their debt and financial leverage ratios.

In the face of fluctuations by the global economy and the subsequent effects left on the Vietnamese economy, many experts have proposed domestic firms outline detailed action plans on grasping opportunities and tackling challenges that arise from these fluctuations. First and foremost, top priority should be given to improving their competitiveness to regulate and maintain their operation.

Companies should strictly comply with standards and requirements prescribed in the free trade agreements which Vietnam has signed, in order to optimize opportunities and incentives of these pacts, and deepen their integration within the global value chain.

Enterprises must also keep up to date with worldwide market trends and information, which is expected to create a starting point for them to set forth an appropriate action blueprint.

Luc further stated that in order to better their resistance to market fluctuations, companies must further improve their financial administration, capital structure, and financial leverage.

It is vital to update tools dedicated to preventing and handling financial risks in relation to exchange rates, interest rates, currency, and price fluctuations, with an aim of enabling firms to raise access to the capital market, he warned.

According to Ha Huy Tuan, vice head of the National Financial Supervisory Commission, firms should enhance the sharing of market information and data amid booming IT development while strengthening their links in conducting research and development in the field of science and technology.

This could help many businesses to slash their expenses for R&D work and potentially seek proper partners, Tuan said.

He emphasized the building of qualified workforce as a crucial element that helps to increase the competitiveness of local firms as he expected high-quality labor force to offer new solutions and models for the sake of common corporate development.

Source: VNA