New bridge to scarce credit lines

“Vietnamese banks are lenders which usually offer collateral-based loans and do not have sufficient experience as well as human resources to consider lending based on project feasibility. That approach needs to be modified and loans should be rendered to viable projects,” said economist Bui Kien Thanh.

Thanh said in the US, if a micro business with $2,500 worth in asset value has a feasible project it can get a $250,000 loan package from banks without the need for collateral.

According to Vietnam Banks Association former chairwoman Duong Thu Huong, Vietnam’s commercial banking system inclined to lend based on project potential money flows. However, firms, in fact, fail to show out project feasibility so that they often borrow with collateral.

“Banks raise money not to keep it idle. To get loans, firms must prove their products are sellable with promising money flows in return,” Huong said, adding that many firms’ current equity per loan rate was 1-20.

Banking experts, however, said to lend based on project feasibility as it was in some developed countries, Vietnamese banks’ information technology, core banking system and relevant legal documents must be on par with international standards. Banks could not risk lending if an enterprise’s information lacked transparency.

According to the State Bank, the credit growth of the banking sector will be between 15-17 per cent per year in 2012 against actual 2011 credit growth of around 12 per cent, and credit growth targets will be set based on bank quality standards.

“Competition among banks for depositors will become tougher in 2012. This means it will be harder for firms, particularly small ones to take on loans,” said Vietcombank’s business management department head Pham Chi Quang.

Quang, however, said bank safes were still open to projects with good returns.
“Besides, banking sector restructuring could help more firms get loans,” said Quang.

Saigon Co.op chairman Nguyen Ngoc Hoa assumed bank restructuring could direct money flows from non-production to production sectors, from there widening firms’ access to loans.

“Besides, the government needs to strongly restructure state-owned enterprises, better public investment and make the most of other capital mobilisation channels like investment funds and stock markets. In doing so, small and medium sized firms can get hands on bank lending,” said Hoa.

Viasa Investment Fund chairman Alan Phan said: “Opportunities are abundant. The world is not short of capital, Vietnam is not short of capital also. What Vietnam lacks is particular products and occupations and firms with good management and broad views.”