Vietnam has been ranked worst in Southeast Asia in a recent corporate health report released by investment bank Natixis, which flagged companies in the country for high leverage and their poor ability to repay debt.
According to the latest ASEAN Corporate Monitor report, Vietnamese businesses seem to be turning back to the old formula for growth: taking risks with borrowed money to pursue projects.
They turn to loans to pursue projects hoping to make profits that can exceed the cost of loans.
The report showed that, amid the sluggish global economy, Vietnamese companies continued to ramp up investment without any sign of slowing down.
"Like any potentially dangerous instrument, leveraging must be handled carefully," said Phuong Pham, an auditor at Ernst & Young Vietnam.
"Every firm can use its power to build wealth, but the question is whether the investment could turn into fruitful project," she said. "It’s like gambling."
Taking the real estate sector as an example, Phuong said if a developer fails to sell its units after taking out huge loans, it's a big problem.
Then imagine a scenario where multiple companies in various industries cannot pay their debts and you could see why growth might take a hit, she said.
Loans expanded 5.3 percent in the first four months, estimated by the National Finance Supervisor Commission. The central bank is targetting credit growth of around 18 percent this year, after last year's 18.71 percent.