Private SMEs tackled by inaccessibility to bank loans

Private businesses have made significant developments in all fields, sectors and regions. 

According to 2016 data from the Statistics General Department, the private sector contributed 40% of the total GDP and generated 51% of jobs across the country.

Though the Government, the State Bank of Vietnam and local banks have made efforts and solutions to help private businesses access bank loans, there are still troubles for them to receive financial support.

“About 70% of private businesses cannot access bank loans, though there are many policies that allow local banks to increase their credit growth in the private sector,” said To Hoai Nam, Secretary General of the Vietnam Association of Small and Medium Enterprises at an online conference held yesterday by the Government portal chinhphu.vn.

SMEs and private companies have to look for other available sources of capital, such as relatives and the black market, which offers high interest rates and risks, according to Nam.

Local banks are often cautious considering business plans of private companies and hardly change their policies to meet businesses’ requirements.

On the other hand, private companies are unable to demonstrate the potential outcomes in their borrowing proposals and comply with bank requirements about the standard form of financial reports, and they often have low-valuated guaranteed assets.

According to economist Nguyen Minh Phong, there are a few main reasons that have kept SMEs from obtaining bank loans.

First, private companies do not have long-term business strategies. Therefore, they prefer available financial loans to those from banks.

Secondly, bank lending rates are often higher than those of other capital sources, and the businesses themselves are not qualified to make loans from banks.

Lower lending standards for SMEs

"Local banks need to change their ways of thinking and have more practical actions in making loans to SMEs," Nam said.

Local lenders should filter 10% of the privates companies – among the 70% of the private companies that have been unable to make bank loans – as potential businesses, he said.

Banks should also redesign lending terms to help private companies become able to access loans, he added. “It is important that banks make unsecured loans for SMEs and allow them to access the long- and middle-term loans.”

Phong said that private companies should merge with each other to raise their status on the market and make their brands more well-known so that they are able to receive loans from banks.

Private companies should also look for other sources of capital such as initial public offering (IPO) on the securities market, he said.

Local banks should improve their risk management mechanisms and lower their standards for guaranteed assets and unsecured loans for private companies, especially newly-established firms in the market, Phong said.

Half private firms take loans for operation: VCCI

Local private enterprises have improved their productions and operations, but half of them still must take operational and production loans, according to the Vietnam Chamber of Commerce and Industry (VCCI).

VCCI research surveys show that Vietnamese private enterprises had developed robustly since 2000, and they had registered to operate mainly in sectors of commerce, services and construction.

Few of them had joined the production and industry sectors, and local private enterprise contribution to the domestic economy remained limited, said the VCCI.

According to the survey roughly 50% of local private enterprises have taken loans. Large firms commonly took big loans. They have used the loans mainly to stabilise operations, but not to invest in updating equipment and technology.

At 2%, the portion of enterprises using high technology is very low compared to other countries in the region. Small and medium-sized private enterprises have invested only 0.2-0.3% of their revenue to technology reform.

Small and medium sized enterprises (SMEs) and private firms have paid attention to quality of products and strategies on products because of high market demand.

However, SME production has continued a low technology rate and has been mainly based on labour advantages.

Meanwhile, SME managers lack skills, management knowledge and reform experience, leading to a failure to implement regulations on tax, financial management, labour, product quality and intellectual property.

Dau Anh Tuan, head of VCCI Legal Department, said according to surveys on annual production and business results of enterprises, 65% of SMEs and private firms have faced difficulty in seeking for customers while 44% of them have had obstacles in approaching capital. In addition, they mainly have customers on the domestic market.

Local private firms have not joined deeply global supply chains, while the nation has signed free trade agreements with many other countries, Tuan said.

Vietnamese SMEs and private firms have faced limitations in approaching international standards in corporate management. Strategies for distribution, communication and trade promotion have not received reasonable investment. 

They have put about 1% of their revenue to those strategies, while foreign firms have invested 10-20% of their revenue in that sphere.

Local firms have also not sufficiently researched potential markets, leading to losses, he said.

Experts expect that the Law on Support for Small and Medium Sized Enterprises will partly contribute to the improving business environment and encouraging development of private enterprises, Vietnam News Agency reports.

Especially, the law will have indirect supports related to credit for local SMEs and private firms.