Lending to Small and Medium-sized Enterprises (SMEs) still encounters many difficulties although a large capital source has been allocated. To unfreeze this capital flow, banks have come up with solutions.
According to Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) Cau Giay branch, as of March 31st 2019, the total outstanding loans of the branch reached 1.850 trillion dong, in which lending to enterprises was 1.431 trillion dong, mainly focusing on SMEs.
At Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), by the end of the first quarter (Q1) of 2019, the total outstanding credit of the bank’s Head quarter was 27 trillion dong, in which lending to SMEs was nearly three trillion dong, focusing on priority areas of the government. In 2019, while the bank targets to expand lending to large enterprises by three percent, the credit growth of SME lending is expected at 22 percent, much higher than the credit growth of the entire system (15 percent) and of the entire sector (14 percent).
“Setting large room for credit growth shows the interest and focus of Vietcombank’s resources to prioritise the development of SMEs, according to Vietcombank’s leader.
For Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the bank has established relation with 64,000 corporate customers, accounting for 24 percent of the bank’s total customers. In which, about 6,000 customers have credit relations with an outstanding credit of about 180 trillion dong, accounting for 28 percent of total outstanding loans to corporate customers. The average credit growth in the past three years of BIDV reached eight percent per annum, and the disbursement of loans reached approximately 415 trillion dong.
For SMEs, Hanoi is the area where SMEs thrives, accounting for more than 97 percent of the total number of enterprises in the area. Currently, BIDV has set up transactions with about 62,600 SMEs, in which about 5,200 SMEs having credit relation with BIDV with outstanding of about 60 trillion dong, accounting for 32 percent of the outstanding credit to SMEs. The revenue of lending reaches about 110 trillion dong, accounting for 27 percent of the disbursement revenue. BIDV’s outstanding credit growth for SMEs in Hanoi is very high at an average of about 28 percent per annum. The disbursement revenue under preferential credit programmes accounts for about 30 percent.
These numbers show that banks have more open orientations for businesses, especially the segment of SMEs. However, in fact, accessing bank loans is still difficult for SMEs.
On the bank side, Vietcombank said that in order to meet the increasing governance standards in accordance with international practices, banks apply many conditions with borrowers. In particular, standard conditions are given based on regulations of the law and all organisational borrowers need to comply with. When starting the business, SMEs’ accounting and financial system is often not regularly updated and information disclosure is not yet transparent, hence they usually have difficulties in meeting these conditions of banks.
In addition, many banks are not really interest in this customer segment due to the assessment of capital efficiency. When considering borrowing applications of SMEs (which are often small loans), the limited workforce of banks still have to fully comply with borrowing procedures like lending to normal businesses, from the stage of document collection, appraisal, to management during and after borrowing period. Thus, with the same management costs and resource, the efficiency of this type of lending is inadequate.
Sharing similar point of view, LienVietPostBank’s representative said that firstly, the financial reporting system of small businesses especially microenterprises is not yet standard, lacks of information or information is not inaccurate, making it difficult for the bank to perform customer information appraisal. Secondly, for businesses in general, except for those that have high credit ratings which can borrow unsecured loans at credit institutions, most businesses do not have enough secured assets that meet the liquidity criteria and good guarantee value as prescribed. The bank must consider receiving collateral as the right to collect debts or inventory in order to support capital for customers. Thus, compared to normal businesses, banks face greater risks when lending to customers of this segment.
Thirdly, for microenterprise customers, it is very difficult for banks to manage cash flows to recover debts, as they are small retail customers with not methodical financial management.
“Currently, commercial banks must ensure compliance with the policy of short-term lending interest rate ceiling when lending to enterprises that are prioritised according to the regulations of the SBV. On the other hand, banks must actively balance resources in the context when the interest rate level to mobilise capital from people is fairly high. That affects banks’ business results and reduces the implementation effectiveness of the programme,” said Quach Hung Hiep, BIDV’s deputy general director.
Solutions
Hiep said that, in order to increase the effectiveness of the policy of lending to priority subjects, the SBV should study solutions such as refinancing; interest rate compensation; and a separate mechanism to determine debt group and mechanism to provision and settle risks, etc. to support and encourage banks to carry out.
LienVietPostBank’s representative said that the bank’ lending heavily depends on the credit growth room of the SBV. In order to meet the regular borrowing needs of businesses, it is recommended that the SBV does not count the loans to SMEs and microenterprises operating in priority areas into the bank’s general credit growth limit.
Representative of Vietcombank proposed that the SBV should have more appropriate and open mechanisms for banks to actively consider the demand for loans of businesses; advise and propose to the government, ministries and industries to provide SME support packages which are close to market reality, and provide policies to remove difficulties of SMEs in accessing credit capital in order to maintain and expand production and business activities.
For businesses, one of the conditions banks particularly pay attention to when appraising loan application is transparency in business operations. Businesses with a well-organised and well-managed business will make it easier for banks to make lending decisions. Therefore, SMEs should apply internal management system to meet the increasing requirements on borrowing conditions of banks.
“To unfreeze the credit flows, improve access to bank loans, and support business development, there is a need for a set of synchronous solution from the government, the SBV and localities. Along with that, businesses should actively enhance their financial capacity, operational and governance capability to satisfy the borrowing conditions of banks,” Hiep emphasized.
