Citi taps into the emerging SME market in Vietnam

From a foreign bank’s perspective, what is your view on the lending market for small- to medium-sized enterprises (SMEs) and their future prospects?

I would say there are numerous opportunities in Vietnam for SMEs to obtain bank financing. Vietnam has experienced remarkable economic growth over the past two decades, becoming one of the most attractive investment hubs in the Asia-Pacific region. Many global technology giants have chosen Vietnam as a destination for their new factories, enabling the supply and distribution chain network to grow. This investment trend will continue to surge if the Trans-Pacific Partnership and other free trade agreements are formally implemented in the near future. All SMEs, both local and foreign, will be in need of financial support in order to expand their operations and compete effectively.

However, there are also challenges. The State Bank of Vietnam is moving the banking industry towards the right direction and is very assertive in restructuring the sector, as well as reducing non-performing loans (NPLs). As a result, the banks will be more selective of clients and more prudent in their lending procedures. They also need to follow global banking standards like Basel II and Basel III in terms of capital ratio. This will lead to heightened due diligence on potential clients overall.

What are Citi’s competitive advantages in comparison with local banks that are said to have more flexibility in banking procedures?

Different banks will target different market segments of SMEs. Citi focuses on serving trade-oriented companies that are involved in our multinational corporation (MNC) clients’ supply chains, both in Vietnam and globally. As a global bank, we are able to provide excellent and consistent services in our product offerings as well as client management across countries.

In addition, many Vietnamese business owners are now passing down their businesses to the younger generation, many of whom are tech savvy and have studied at universities overseas. These young entrepreneurs dare to think big and aim to compete with foreign firms, forming a new generation of management for SMEs. With best-in-class products and services, we can help them reach out to other business partners in other countries through our global network.

Citi has a very strong culture of integrity and ethics, which is one of our key advantages. Our clients trust us to advise them in an appropriate manner to avoid running afoul of both local and global regulations. This helps us form long-term relationships with our clients.

How do you manage credit lending risks? How could Citi lock up a win-win situation for both the bank and your SME customers?

Citi has extensive experience in lending to companies in many emerging markets, some of which are more volatile than Vietnam. The bank has therefore developed a robust global risk management framework and mindset. The framework can be adjusted to suit local markets, but generally follows our global guidelines, ensuring that we are lending to the right clients.

Additionally, our well-trained and experienced relationship managers will continue to serve as the first line of defense, as they are closest to the clients and can spot issues early. Even after granting loans, we implement regular and ongoing assessments to ensure that we continue to be comfortable lending to the clients. For these reasons, we have managed to keep our loan losses generally lower than those of our competitors.

A win-win situation is the result of deep trust, understanding, and transparency between the bank and the client. Our bankers serve our trusted partners responsibly, delivering suitable solutions and creating value for them. As they grow their businesses or even expand their footprint overseas, they always come to Citi first. Our experience in other countries allows us to suggest solutions to clients which may not have occurred in Vietnam before.

Credit lending applications can be complex, with a mismatch in expectations between customers and lenders. What are your recommendations for SMEs when applying for a loan?

Credit lending applications are complex because of the different views of the companies and the banks. The entrepreneurs are more concerned with sales and profit margins; if both are high, they think they will be good borrowers. However, the banks look at other parameters, such as cash flow and management strength, because the companies with good profits don’t always make good borrowers. Properly managing cash flow is the key. I don’t think it is a question of complexity, but rather the difference in expectations among the lenders and the borrowers.

After dealing with companies for more than 15 years, my advice is that companies should be realistic about how much financing they can obtain, as the amount depends on various factors including industry, historical financial performance, and cash flow management.

Different banks will view the importance of each factor differently. Most businesses run into difficulties because the management sometimes confuses profitability with cash flow, so it is very critical for the company to show that it understands good cash flow management. Ideally, the company should have audited accounts and be able to demonstrate a sustainably profitable business model. The management team should also be experienced and understand how to mitigate business risks. In summary, lending is always a negotiated process between both the bank and the company, and if the company fits into the target market and risk framework of the bank, then chances are higher that the loan can be approved.