Smaller businesses continue to bemoan strict lending criteria

Smaller businesses continue to bemoan strict lending criteria, Photo Le Toan

The concerns were highlighted by numerous firms attending a seminar on enhancing capital absorption for businesses last week held by the State Bank of Vietnam (SBV) in Hanoi. Many expressed hopes for an environment that could facilitate access to key financial resources, such as low-interest preferential loans.

Despite the SBV implementing various strategies including slashing operational interest rates four times, expanding credit quotas, and introducing beneficial credit packages, credit growth staggered at 4.73 per cent at the end of June, hitting a 13-year low.

Experts largely attribute this to the significant decline in credit demand, as the market battles capital absorption difficulties, calling for policies to bolster fiscal incentives and encourage capital flow.

“Presently, the system’s liquidity is abundant. However, despite numerous measures, credit growth remains sluggish,” said SBV Deputy Governor Dao Minh Tu.

He underscored the importance of maintaining balance with the exchange rate to prevent potential destabilisation and erosion of public confidence.

Highlighting these challenges, Dinh Ngoc Dung, deputy director of Corporate Banking at SHB, expressed that despite the execution of several strategies, SHB’s credit growth remained slow in the first half of the year.

Businesses face numerous hurdles such as disrupted cash flows, accumulated inventories, and a need for workforce reductions. High costs of imported raw materials have driven up the price of goods, while diminishing domestic and global purchasing power hampered the search for product outlets due to a lack of orders, resulting in a reduced demand for new loans for production, Dung said.

“In the last months of the year, SHB will continue to streamline, reduce procedures, simplify and shorten the lending process, and digitalise the entire lending process to significantly reduce the time for loan approval and appraisal, facilitating quicker and more convenient access to bank credit capital for our customers,” Dung added.

Contrastingly, BIDV reported promising results, achieving a credit growth of 7 per cent in the first half of the year. Deputy CEO Tran Long said, “This success was due to BIDV’s proactive strategies, including reducing the base interest rate and launching credit packages totalling $10.55 billion.”

Nguyen Van, deputy chairman of the Hanoi Association of Industrial Enterprises, said that in the face of stalled production cycles and dwindling orders and funding, Vietnamese businesses are demanding more flexible borrowing terms.

“Businesses require simpler access to financial resources, preferably through low-interest loans, to survive and recover,” he said.

Van also highlighted that, alongside lowering interest rates, credit institutions must foster conditions that enable businesses to access capital. He advocated for stronger links between banks and businesses through a variety of programmes.

“In addition to financial backing from banks, small- and medium-sized enterprises (SMEs) in the support industry sector are in dire need of strategic policies to spur supply chain dynamics and product availability. Policy attention must further extend to nurturing infrastructural development and the implementation of innovative technologies,” he said.

Nguyen Van Than, chairman of the Vietnam Small-and Medium-Sized Enterprises Association, acknowledged that banks have recently rolled out effective strategies, such as preferential loan programmes for the manufacturing sector, to alleviate capital crunches for firms. SMEs currently account for over 38 per cent of the total outstanding loans in the economy.

Despite these efforts, SMEs in particular are grappling with falling domestic consumption and plummeting export orders. Than revealed that roughly one-quarter of its members struggle with accessing credit, due to strict lending criteria and bureaucratic red tape at banks.

“Reducing interest rates is merely one of the solutions to enhance businesses’ capacity to absorb capital,” Than noted.

In response to the current climate, Phung Thi Binh, deputy CEO of Agribank, articulated the bank’s robust response to the pressing financial concerns. “We’re making a significant push for preferential lending schemes, with two main initiatives on the anvil - one targeting import-export firms, amassing around $1 billion, and another for SMEs, accumulating over $830 million,” she told VIR.

“An important aspect of our plan involves streamlining the loan approval process to reduce both the administrative burden and processing time, and we are making a concerted effort to enhance our communication channels to ensure effective dissemination of information about our preferential loan programmes to the business community,” Binh added.

Economist Vo Tri Thanh suggested that current adverse conditions might ease due to US Federal Reserve’s interest rate increase last week, signalling a softer monetary stance. Yet, mounting commodity prices, driven by geopolitical tensions, continue to fuel inflation uncertainty. “Domestically, Vietnam is grappling with liquidity issues and a severe export downturn since the last quarter of 2022, both leading to significant economic pressures. Amid these challenges, Vietnam’s strategic policy responses will be crucial for future economic stability,” Thanh said.

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