May 19, 2023

 

High interest rates engender challenging economic environment for Vietnam agriculture

 

 

As Vietnam faces uncertain headwinds, many companies in the agricultural sector have been hit by higher interest rates, Vietnam News reported on May 15.

 

Loc Troi Group, a leading provider of agricultural services and products in Vietnam, posted a loss after tax of ₫81 billion (US$3.4 million) in the first quarter, compared with a profit of ₫184 billion (US$7.8 million) a year ago.

 

Interest rate surges have cut into the company's profit as borrowing expenses jumped three times to US$4.5 million in the first three months of the year from a year before, said Nguyen Duy Thuan, chief executive officer of Loc Troi Group.

 

Amid aggressive rate hikes by the US Federal Reserve, Vietnam's central bank has managed to cut its policy rates twice in the past few months and lower the cap on interest rates for short-term loans in some priority sectors, including agriculture, to 5.5% per year.

 

Despite such measures, interest costs, among other rapidly rising input costs such as energy and fertiliser, have weighed on agricultural companies' earnings.

 

In the first quarter of this year, Dabaco Vietnam, a leading company in livestock production, recorded a record loss of ₫321 billion dong (US$13.6 million) due to a slump in revenue and a jump in interest expenses.

 

The weakening of the dong currency has also added to the difficulties faced by exporters of agricultural products, as imports of their raw materials are more expensive, experts said.

 

Vinh Hoan, a top pangasius exporter of the Southeast Asian country, recorded interest expenses of more than ₫37 billion (US$1.6 million dollars) in the first quarter, up nearly 95% from a year ago and exchange rate loss of more than ₫45 billion dong (US$1.9 million), up 165% over the year.

 

Combined with this increased cost of borrowing, shipments to key markets such as the United States and Europe have sharply fallen amid a global slowdown.

 

Vietnam's seafood exports in the first four months of the year plummeted 29% from the same period last year to US$2.6 billion, according to the country's General Statistics Office.

 

All of that means Vinh Hoan suffered a 61% year-on-year decline in pre-tax profit in the first quarter, the company's financial statement showed.

 

Nguyen Hoai Nam, deputy general secretary of the Vietnam Association of Seafood Exporters and Producers, said that export processing firms are facing many difficulties including lower market demand, rising raw materials and credit crunch.

 

He suggested commercial banks keep interest rates stable for certain maturities and offer easier access to capital for companies in the agricultural sector.

 

Nguyen Ngoc Nam, chairman of the Vietnam Food Association, said rice producers and traders in the Mekong Delta region are now waiting for the central bank's move to increase lines of credit ahead of the winter-spring harvest in 2023.

 

The central bank has told lenders to simplify administrative formalities, shorten credit appraisal procedures and diversify loan products so that rice farmers and traders can gain capital for producing, buying, processing and storing rice for export.

 

- Xinhua