KfW Offering Best Financial Services

KfW Offering Best Financial Services

KfW ( Kreditanstalt fuer Wiederaufbau) is Germany’s leading promotional bank and plays an active role in the areas of investment finance, export and project finance. Since 1992 Vietnam has received grants and loans from Few and DEG (part of KfW group since June 2001) amounting to about EUR 330 million. We interviewed Mr. Klaus Mueller, Director of KfW  Office Hanoi ,Vietnam

What are the main areas KfW is focusing on in Vietnam? What kinds of projects can receive loans and grants from KfW for?

KfW is a group of banks offering financial services in a wide range of areas from development finance to commercial finance both for public and private projects. This allows us to support Vietnam in an ideal way on its path towards financial sustainability, i.e. a gradual shift from concessional development finance towards commercial finance.

Currently Official Development Assistance on behalf of the German Government is the cornerstone of our activities in Vietnam. German ODA is focussing on the health sector, environmental protection and private sector promotion. As KfW Development Bank we work closely with other German Development organisations like GTZ, DED and In Went that complement our finance with capacity building measures. Since mid 2002 we have shared joint offices in Hanoi Towers. In the area of Official Development Assistance, projects need to be submitted through Vietnam’s Ministry of Planning and Investment and are selected during the bi-annual German-Vietnamese Government Negotiations. The financing conditions depend on the project type and range from grants and highly concessional loans mainly for projects in social sectors towards instruments of mixed and market-based finance suitable for economic infrastructure projects and financial sector projects.

The official development assistance activities of KfW Development Bank are complemented by DEG, the second Development Bank of the KfW Group. DEG is specialised in its promotion of the private sector and offers tailor- made long-term finance at market conditions for all types of private business in Vietnamese enterprises, foreign enterprises or joint ventures.

Finally the so-called KfW IPEX Bank provides long-term commercial export and project finance to support European exports and investments in Vietnam.

With respect to the financial services of DEG and KfW IPEX, KfW can be approached directly with project proposals. Basically, all profitable projects which are socially and environmentally compatible, having financing requirements of EUR 3 million and above will be of interest. There is also no sector focus, so we would look at projects in the areas of manufacturing, communications, transport, energy and banking. Financing conditions are market-based, but I believe they are very attractive, in particular due to the long maturity, which is still a limiting factor in the domestic banking market.

Can you please inform our readers about the achievements of KfW in Vietnam, especially in the area of private sector promotion?

The last few years have been very successful for our activities in Vietnam. Since the year 2000 we have increased our portfolio from EUR 200 million to EUR 360 million, mainly in our current key area of development assistance. I believe that together with our Vietnamese counterparts we have also made significant progress in the quality of our development assistance by moving towards more Vietnamese ownership and by increasing the development impact through more focussed programmes as well as partnership with other donors, for example in the area of SME promotion with the Asian Development Bank and the French Development Bank AFD.

Achievements have also been remarkable in the area of private sector promotion. Through credit funds at the Industrial and Commercial Bank of Vietnam and the Vietnam Bank for Agriculture and Rural Development targeted at micro, small and medium enterprises (SMEs) we were able to support about 6,000 private SMEs and 64,000 micro-enterprises, generating more than 45,000 jobs and lifting many households above the poverty line.

In addition, DEG has been actively promoting private sector development through the so-called Public-Private Partnership Programme (PPP). Within this programme, projects of European companies supporting sustainable development in areas like environmental and social safeguards or vocational training can be co-financed with funds from the German Government. Altogether eleven such PPP Programmes are currently under implementation in Vietnam with several well- known companies.

What comments do you have on the financial market in general and the banking system in particular in Vietnam?

The financial sector is the heart of each economy. All recent economic crises like the Asian crisis were stirred by the financial sector. Therefore KfW considers reform in this area as the cornerstone of economic reform in Vietnam. While we acknowledge the progress that has been made over the past years, in particular in the areas of restructuring State Owned Commercial Banks and separating policy lending from commercial lending, we believe that such reforms need to be intensified.

The high-level of non-performing loans (NPLs) is certainly an issue requiring particular attention and KfW hopes that the forthcoming assessment of the State Bank of Vietnam will provide a transparent picture of the NPL situation. However, I believe that the key to solving the problem of NPLs does not lie in the assessment of the past and current situation but in the stringent application of international standards to improve the transparency and quality of lending for the future, both of public banks including the policy banks as well as for the private banks. In a broader sense one could say that transparency in the financial situation of enterprises including banks remains the single most limiting factor to further expansion of our commercial lending activities in Vietnam.

• Reported by Hoang Ha