VietNam Business: bank loans

Showing posts with label bank loans. Show all posts

Sunday, February 20, 2011

Access to bank loans seen easier for SMEs

HCMC – The biggest concern raised by almost all enterprises at a seminar on capital for small and medium enterprises (SME) last week is difficult access to loans at commercial banks but the situation is expected to improve in the near future.

A business executive said at the seminar that commercial banks should keep their promises. He had joined a lot of similar seminars where banks promised to support SMEs, but after that he got disappointed when no bank approved his borrowing application, he said.

Nguyen Xuan Lam, director of L.V. Company, which produces auto parts, said his SME falls under the category of having priority access to bank loans in line with Government policy as his enterprise exports all output and operates in the hi-tech industry. However, no bank has lent to his business, causing its loss of contracts, he noted.

“In the past big foreign customers expressed interest in placing orders with us but we could not secure them because our facilities do not meet their requirements,” Lam said. His enterprise is borrowing capital from ACB, he said, and it needs long-term capital to build a factory.

The two are among the many businesses that have found it impossible to take out bank loans due to high interest rates and hindrances along the way.

Do Lam Dien, deputy head of corporate clients at Maritime Bank, said there existed many obstacles to SMEs’ access to bank loans, such as lack of mortgages, banks’ unwillingness to lend to SMEs, problematic tax payment reports, unsound business plans, and high lending rates.

However, the situation is seen changing for the better in the coming time. Commercial banks, seeking to boost lending, have begun to see SMEs as a potential market, and mapped out plans to tap those corporate customers.

Banks, including foreign ones, have set up a department in charge of SMEs, and most of them said SMEs are their potential clients.

Many programs targeting this segment have come out. For example, An Binh Bank has combined with IFC to support SMEs, and HDBank has earmarked VND2 trillion for financing enterprises in the coffee sector.

Nguyen Dinh Tung, deputy general director of Maritime Bank, said the bank had gauged demand of local SMEs over the past two years to work out a qualitative model to assess corporate clients, instead of the quantitative model that used to be applied.

“We will learn about SMEs as clients by accessing and interviewing them,” Tung said at the seminar.

According to the HCMC Institute for Development Studies, Vietnam now has 500,000 enterprises of which SMEs account for 97%. SMEs are responsible for about 30% of GDP, 30% of industrial output value, nearly 80% of total retail sales, and 64% of total goods transport volume every year.

Thursday, February 10, 2011

Credit-Thirsty SMEs Seeking Ways To Survive

Customers seek consulting for their borrowing at Prudential Finance in HCM City

Small- and medium-sized enterprises (SMEs) are regarded as the backbone of the economy, accounting for 97% of the 470,000 registered businesses. Over the years, they have played an increasingly significant role in the economy, contributing to the GDP and generating employment.

Vietnam’s SMEs are presently very much in need of capital to expand their operations and profits. However, they are facing tremendous difficulties in gaining sufficient access to finance, the most important obstacle to their growth.

Vu Cong Hoa, head of Phuong Nam Packaging and Mechanical Engineering Cooperative in HCM City, is struggling to find funds to continue the project that is two-thirds complete. His business, which is conducting a study on creating a waste processing line to turn garbage into organic fertilizers, has not generated any revenue since the beginning of the year. Up to now, 70% of the work done has resulted in various types of machinery lying in heaps in the cooperative’s warehouse.

Unable to raise sufficient capital from cooperative members as well as failing to obtain bank loans, Hoa has resorted to every credit fund but to no avail. He has yet to know how to overcome the capital shortage in the future.
Hoa’s dilemma is typical for many local SMEs which are thirsty for investment capital and have no idea how to quench their thirst. Inadequate access to finance remains a great concern for SMEs despite numerous Government moves and banks’ efforts. On the one hand, SMEs can articulately present to banks all their difficulties in terms of capital, technology renovation, facility construction and investment. On the other hand, banks frequently face problems in evaluating loan applications from enterprises.

Indeed, experts have pointed out two major issues among others that are borrowers’ financial statement and collateral. Financial reports of businesses are deemed to be unreliable and lack transparency. Some businesses may maintain two to three different accounting records on their operation: A financial report which often declares loss aiming at evading tax; another for internal use that would not be revealed to outsiders; and maybe a third one for shareholders’ review.

Applications for bank loans with a financial statement declaring loss would surely be rejected. Banks would set aside money for credit-worthy SMEs, those with accurate reports, feasible business plans and high possibility for solvency.

Even when banks neglect the misleading financial statement and switch to scrutinizing project feasibility, many businesses still cannot meet this requirement. In many cases, enterprises try to seek short-term loans to finance long-term assets like machinery, equipment and facility construction. Besides, collateral and financial capacity are other hurdles that block businesses from access to bank loans.

Where to turn to for funding

Experts said SMEs can seek loans from credit sources offering long-term loans, finance sources formed under joint ventures, finance leasing companies and credit funds. They can also approach foreign financial institutions that promote projects related to climate change or clean production with minimal impact on the environment. To ensure success, applicants should fully understand the institution’s evaluating criteria. Generally, lenders want a coherent financial statement that has been audited and a profitable business plan.

The first capital source for enterprises came from Government policy. According to Tran Buu Long, vice director of the HCM City Credit Fund, credit policy for SMEs has been implemented through various municipal programs. The large scale program provides the investment stimulus package while smaller programs cover a series of funds for various purposes. There are a fund that revolves the money to facilitate cleaner and greener production for businesses, fund to mitigate environmental pollution, fund to support science and technology development, and fund to assist businesses in building warehouses and transportation infrastructure.

The city’s Science and Technology Development Fund has an initial capital of VND50 billion with non-mortgage interest rate ranging from 0%. Its maximum level is half of that of commercial banks. The fund can provide non-refundable loans for certain projects. Its capital is expected to reach VND200-300 billion by year-end.

The HCM City Finance Investment Company that holds many capital sources of the city is also a potential lender for businesses.

The city’s Credit Guarantee Fund has provided guarantees for businesses to borrow a total of VND400 billion up to now. However, banks have turned down many applicants who have been guaranteed by the fund. Currently, the fund’s balance of about VND277 billion is too modest for the demand of over 200,000 businesses in the city.
Commercial banks are probably best positioned to improve SMEs’ access to finance. Many banks are carrying out promotion programs targeting SMEs considered to be their potential customers. ACB has some projects to aid SMEs; some in collaboration with the Japan Bank for International Cooperation while others linking with projects in the European Union.

Another example is the partnership between the International Finance Corporation and Techcombank in a program worth US$125 million that focuses on supporting local SMEs in renovating technological equipment and saving energy.

SMEs’ journey to seek capital seems to be full of hardships. Yet amid those difficulties, the authority of Long Hau Industrial Park in Can Giuoc District, Long An Province has managed to find a practical solution. Well aware of businesses’ financial woes, the authority of Long Hau has borrowed capital and lent it to businesses operating in their park.

Long Hau Industrial Park has built facilities and workshops for lease or sale to businesses and allow them to pay by monthly installments over a duration as long as 10 years. The park also helps businesses obtain long-term bank loans in cash. Besides, it works on creating funding channels for businesses by collaborating with financial institutions and banks. Long Hau’s efforts have eased businesses’ financial pressure and lured more customers into the park.

Sunday, November 21, 2010

Delta SMEs urged to use idle capital

HCM CITY — Small – and medium-sized enterprises in the Cuu Long (Mekong) Delta provinces that have had difficulty accessing bank loans should make use of their idle capital, business leaders have recommended.

"The situation for recovery after the financial crisis is not easy for every SME," Nguyen Huu De, deputy director of Can Tho City's Viet Nam Chamber of Commerce and Industry (VCCI) told the conference last Friday.

De said SMEs accounted for 90 per cent of total businesses in the Delta region.

Other experts at the conference also encouraged SMEs in the region to use idle capital to re-invest in production.

Bui Van, consultant for the financial channel FBNC, said most SMEs were unaware of how to use all capital sources for production because they had not been doing business for a long time.

Dr Le Tham Duong of the HCM City Banking University proposed that banks in the region create more credit forms rather than just guaranteed loans.

"In my research, only one-third of SMEs can access capital from bank loans, and the remaining two-thirds have to find other sources, even with higher interest rates," he said.

Duong said SMEs could gain more trust from banks by improving their production and management capacity.

They should also demonstrate their need for owning advanced technology and equipment, he added.

However, Vo Hung Dung, director of the VCCI branch in Can Tho Province, told Viet Nam News that SMEs should not be blamed for difficulties in accessing capital from loans because the amount of available capital loaned by banks was taken up mostly by large companies.

The conference was co-held by the laisuat.vn economic information channel and Can Tho VCCI chapter. — VNS

Tuesday, November 2, 2010

Bad book-keeping cuts SME credit access

Bad book-keeping cuts SME credit access Most small and medium enterprises in Vietnam are unable to access bank loans because of their inability to present comprehensive financial documents, heard a report at a conference Thursday.

The Vietnam Chamber of Commerce and Industry (VCCI) estimated that less than 30 percent of Vietnamese SMEs are able to access bank loans. The banks themselves put the figure at around 20 percent.

Dang Van Thanh, chairman of Vietnam Association of Auditors and Accountants, said many enterprises do not maintain financial records with a compelete accounting system and accurate reports.

Nguyen Thi Huong Nga of ANZ said to get bank loans, enterprises have to pass “harsh credit barriers”.

Banks will “look through” several criteria such as the enterprises’ solvency and financial capacity, whether their business plans are doable, how their money rotates in the market, their profits and losses, Nga said.

SMEs account for 90 percent of enterprises in Vietnam and they should have been a fertile market for banks, she said.

Enterprises should improve their auditing and accounting systems, and think about inviting independent auditors to make reports.

An independent auditor is not mandatory for bank loans but it helps convince the lenders about the transparency of a firm's financial information, Nga said.

However, most SMEs cannot afford the services of an independent auditor, conference participants noted.

Le Thi Hong Len, representative of the UK-based Association of Chartered Certified Accountants in Vietnam, said shortcomings in Vietnam’s laws and policies are also reasons why SMEs cannot get bank loans.

But while waiting for changes in laws and policies, the enterprises should also change their management, trading and financial administration, she said.

Friday, October 29, 2010

SMEs need to be better audited

Small and medium-sized enterprises should improve their auditing standards if they wish to access much needed capital, a conference in Hanoi heard Thursday.

There are about 450,000 enterprises in the country, according to Dang Van Thanh, chairman of the Vietnam Accounting and Auditing Association.

He said about 96 percent of those firms are SMEs, which contribute about 40 percent of Vietnam's total GDP.

However, he said almost every business in the country faces difficulties accessing credit.

Statistics from the State Bank of Vietnam 's Credit Department showed that just half of the 163,000 non-State enterprises had taken out bank loans, accounting for 27 percent of the country's total debt.

"It means that half of the non-State businesses, most of which are SMEs, are suffering a capital shortage," he said.

Another investigation released by the Ministry of Planning and Investment's Development Department shows that just one-third of SMEs has access to bank loans.

Nguyen Minh Tuan, deputy head of the Vietnam Chamber of Commerce and Industry's Business Development Institute, agreed that accessing credit is a problem for SMEs.

Economist Nguyen Dai Lai said banks pay particular attention to production and business plans and capital ability when they consider loan applications.

"Financial transparency and demonstrating the ability to make a profit are vital for any business that wishes to get credit," Lai said.

To meet bank requirements, participants at the conference were told about the need for independent auditing.

"Independent auditing could increase the reliability and accuracy of businesses' financial reports," Lai said.

Nguyen Thi Huong Nga, ANZ Bank's country head of Credit Risk, said financial reports need auditing certification because it increases confidence in the information provided.

"However, many SMEs are not aware of the importance of auditing in answering capital questions," said Le Thi Hong Len, head of the Association of Chartered Certified Accountants (ACCA) Vietnam.

Nguyen Thanh Trung, general director of Mazars, said financial reports are needed to access long-term credit businesses.

"Auditing is not a compulsory requirement for SME's. However, it is helpful and makes accessing credit easier," he said.

SMEs need to be better audited