Untie the knot, find solutions to increase access to capital for enterprises

DNHN - Currently, small and medium-sized enterprises are facing many difficulties in accessing capital sources, which is also one of the reasons leading to “negative” credit growth in the first two months of 2024.

41% of businesses no longer have sufficient legal collateral to borrow capital

A recent survey by the Ho Chi Minh City Union of Business Association (HUBA) shows that although banks have a lot of capital for lending, small and medium-sized enterprises (SMEs) still cannot access it because they do not meet the requirements for asset collateral or are not eligible to borrow.

HUBA’s survey shows that up to 41% of businesses no longer have sufficient legal collateral to borrow capital. Meanwhile, the valuation of agricultural land assets is very low. Annual land lease assets cannot be mortgaged either. Other assets are depreciated as inflation rises.

According to HUBA, with the current difficulties, businesses do not borrow because they do not have contracts or businesses borrow capital not only for new investment needs but also to pay off old loans that have matured.

Commenting on the difficulties in accessing capital for businesses, Mr Nguyen Quang Thuan, Chairman of the Board of Directors of FiinGroup, said: “The biggest difficulty for SMEs in Vietnam today is the transparency of information, especially the quality of financial statements. For SMEs, accessing bank credit capital is quite difficult, although commercial banks are shifting and can lend based on credit rather than just based on physical assets. However, in reality, most newly established SMEs in Vietnam are under 5 years old (accounting for > 40%), so it is not easy to consider credit assessment criteria and credit scoring. In particular, the transparency of financial information and the quality of financial statements, the consistency between financial statements declared for tax purposes and audited financial statements or reports submitted to banks, currently have a very large difference. This has put Vietnamese businesses at a disadvantage, not only in terms of accessing capital from commercial banks but also affecting import-export services because, in import-export activities, foreign partners will score Vietnamese businesses. The lower the score, the more disadvantaged the costs and profits for Vietnamese businesses will be.”

Meanwhile, Mr Tran Van Hien - Deputy Head of VINASME’s Training Department said that the specific difficulties of SMEs in accessing credit capital sources include: No collateral; having collateral but the asset value is low, the loan-to-value ratio is low; unsecured loans are very difficult to access; lending based on cash flow and working capital cycle is also not feasible; projects have low feasibility; financial statements are unreliable; no business plan and self-reported financial statements for 3-4 years.

Currently, small and medium-sized enterprises are facing many difficulties in accessing capital sources, which is also one of the reasons leading to “negative” credit growth in the first two months of 2024.

According to the State Bank of Vietnam, credit growth of the credit institution system by mid-February 2024 still decreased by 1% compared to the end of last year, showing that the economy’s capital absorption capacity and capital demand are not high.

What solutions are there to increase access to and absorption of capital for businesses?

At a recent regular meeting of the Government, Deputy Governor of the State Bank of Vietnam Pham Thanh Ha explained that credit growth was slow despite abundant liquidity due to seasonal factors in credit activities and borrowing activities also not growing as much as in the fourth quarter of the previous year.

“The liquidity of the system is very abundant and the banking sector is also ready to provide capital for the economy. However, there needs to be more synchronous coordination of policies from agencies. It is necessary to improve the efficiency of funds such as the credit guarantee fund for SMEs, the SME development fund, to increase the access to credit of these businesses” - said Deputy Governor Pham Thanh Ha.

To increase access to and absorption of capital for businesses, Mr Nguyen Tri Hieu - the first Vietnamese to establish a bank in the US and also one of the experts who have made many positive contributions to the development of the financial and banking sector in Vietnam - proposed 3 main solutions:

Firstly, SMEs need to have an improvement in their business plans and especially financial reports should be prepared and drafted by accounting firms, then the reliability will be higher than a tax report. Or, it is possible to use the audit reports of auditing companies to achieve almost absolute reliability.

Besides, one of the issues that banks consider to have high creditworthiness is a business plan, a business plan of the enterprise for 1-3 years and that is one of the shortcomings of Vietnamese enterprises. That is, they only give an idea that next year we will grow, increase profits, increase the number of customers… but how much will increase on what basis or forecast on the macroeconomic basis of interest rates, economic growth, inflation, then businesses have not clarified.

Along with the above issues, businesses need the support of banks, especially the “credit guarantee fund”. This is a fund that guarantees banks so that banks can lend to SMEs, which is something that needs to be done urgently this year. We already have Decree 34 on the “local credit guarantee fund” but it needs to be amended not only that, but we also need a “Central credit guarantee fund” located in Hanoi and the charter capital of the Central credit guarantee fund is not only 100 billion as the local credit guarantee fund according to Decree 34 but needs to have a charter capital of up to 10,000 billion to be able to guarantee for all businesses nationwide.

In addition, according to Mr Nguyen Quang Thuan, to easily access capital from commercial banks, leaders of SMEs should focus not only on professional aspects, and good management of products and services but also pay attention to the transparency of information and the quality of financial statements as well as raising the credit rating or credit score.

On the bank’s side, Ms Nguyen Thi Bich Hanh, Director of the Branch of the Joint Stock Commercial Bank for Industry and Trade of Vietnam (VietinBank), Hoang Mai, shared: “Successful access to capital sources from banks, especially state-owned banks, demonstrates the prestige of the enterprise. To access bank credit capital, first of all, it is necessary to have legal capacity, creditworthiness, operational capacity and collateral. On the side of commercial banks, banks should design specific products for SMEs, and build assessment methods suitable for SMEs. Besides, it is necessary to increase the provision of services such as consulting, training, and support information for SME customers. When both sides are proactive in terms of information and connection, it will be easier to meet and approach each other.”

Bao Bao