Finance & Banking
Last updated: Wednesday, February 22, 2017
Seeking Capital for BusinessesPosted: Tuesday, August 16, 2016
Vietnam currently has around 500,000 businesses, of which small and medium-sized enterprises (SMEs) account for 95 - 96 per cent, contribute 40 per cent of the country’s gross domestic product (GDP) and employ 51 per cent of workers. Existing capital shortage and difficulty accessing capital sources are major difficulties against SMEs.
The Government has adopted many policies to support businesses to widen access to capital sources to deal with this matter. But in fact, SMEs find it hard to reach soft credit.
Insufficient procedures for loan
At the workshop on “Supporting businesses to access domestic and foreign capital sources” held recently in Hanoi by the Business Information Centre (BIZIC) under the Vietnam Chamber of Commerce and Industry (VCCI) in collaboration with Finance Magazine, Mr Dang Quyet Tien, Deputy Director of the Corporate Finance Department under the Ministry of Finance, attributed this reality to the problematic “health” of enterprises. Unlike State support funds, commercial banks are also businesses. They thus have to serve their customers well and change their lending processes towards simplicity but rigidity. Meanwhile, without security assets, most companies cannot borrow money from banks. The poor transparency, accuracy and reality of financial data prevent them from accessing unsecured loans. Many companies are operating ineffectively, with high inventories, heavy debt and weak competitiveness. Their low level of corporate governance results in ineffective, unsustainable business strategies.
According to the State Bank of Vietnam (SBV), outstanding corporate credits have been on the rise since 2014 and currently account for about 60 per cent of total outstanding loans of the economy. As of May 31, 2016, total outstanding corporate credit increased 14 per cent over the same period of 2015 and the private sector took the largest share of 75 per cent and had the fastest credit growth of 18 per cent. The non-performing loan (NPL) ratio of the business sector tended to fall, with a drop of 14 per cent in 2015 from a year earlier.
By the end of the second quarter of 2016, as many as 540 business-bank conferences and dialogues were held in 63 provinces and cities to seek solutions to help over 50,000 enterprises and over 160,000 other entities (cooperatives, small businesses, business households, etc.) to take loans, restructure debts, lower existing interest rates, and facilitate new loans to deal with their difficulties. The total loan value in the programme reached VND880 trillion (US$40 billion) as of June 2016 and the popular interest rates are 6 - 9 per cent per annum for short-term loans and 9 - 11 per cent per annum for medium- and long-term loans, a decrease of 1 per cent from earlier. Debt rescheduling, repayment term restructuring, credit limit increase and rate cut were applied to VND80 trillion.
Mr Hoang Quang Phong, Vice President of VCCI, said, the Government is very concerned about the development of the business community, especially clearing obstacles in access to capital sources for businesses. The Ministry of Planning and Investment launched the SME Development Fund (SMEDF) with a charter capital of VND2 trillion in April 2016 to provide soft loans for SMEs. The World Bank (WB), the Asian Development Bank (ADB), and the Japan Bank for International Cooperation (JBIC) also funded Vietnamese companies through their projects.
In fact, the SMEDF has limited resources while its lending policies and procedures are still being perfected for greater transparency and consistency. Meanwhile, to access credits from the fund, the business must operate in the field of agriculture, forestry and fisheries; industrial manufacturing and processing; water supply, and waste treatment and management. The maximum loan rate of a project and business plan may reach 70 per cent of project and plan value. The maximum maturity period is 10 years. Interest rate for short-term loans (a maturity of less than one year) is 5.5 per cent per annum and the interest rate for medium and long-term credits is 7 per cent per annum.
In the coming time, authorities will access international funds or foreign lending Directorate of Fisheries to support local SMEs and private enterprises to diversify funding sources for them.
According to experts, to ensure banking operations and investment, production and business activities of enterprises in a safe and effective manner, efforts from both sides, banks and businesses, are necessary.
Dr Nguyen Tien Dong, Director of the Department of Credit for Economic Sectors under the State Bank of Vietnam (SBV), said that it is important to increase government support for enterprises, especially modify and perfect lending guarantee and capital support mechanisms of SMEDF to better deal with difficulties and problems arising in implementation. Authorities should continue to improve the legal framework for improving capital access for enterprises, simplify administrative procedures, and better the business environment in order to reduce the time needed for property mortgage and sale procedures.
In particular, businesses are still important actors in the struggle for survival. To approach capital flows successfully, they must self-improve their governance and accounting system toward transparency and clarity, enhance leadership levels as well as knowledge of governance and laws among others.