At the seminar “Innovation in Financial and Banking Services for Small and Medium-sized Enterprises in Vietnam” held in Hanoi on July 24, many experts opined that the small and medium-sized enterprise (SME) segment is an untapped potential client base for financial institutions and credit organizations.
In June 2024, Fiin Group’s data and risk assessment model identified 31,773 SMEs that had not accessed loans despite their low to very low-risk profiles.
Asserting that this is a “challenge for banks and credit institutions to reach SMEs,” Ms. Pham Thi Thanh Huyen, an expert from the International Finance Corporation (IFC), provided an overview of the market for credit institutions in Vietnam and suggested solutions to facilitate easier access to financing for SMEs.
Ms. Huyen speaking at the event
By nature, financial organizations are not permitted to raise capital from the public. Therefore, Ms. Huyen believes that safety regulations will be lower compared to banks.
Since banks raise deposits from the public, the State Bank of Vietnam (SBV) must ensure the interests of the depositors. Consequently, safety regulations for commercial banks are much higher than for non-deposit-taking lending institutions.
In Vietnam, such financial organizations are called non-bank credit institutions, and they are divided into several segments.
Out of the 26 finance companies in Vietnam, 16 are consumer finance companies, and 10 are financial leasing companies. Among the financial leasing companies, only about eight are currently operating, according to Ms. Huyen.
More notably, “none of these companies focus on lending to small and medium-sized enterprises”.
For consumer finance companies, they have a limit imposed by the SBV. According to their licenses, lending to SMEs cannot exceed 30% of their total outstanding balance. Typically, the remaining 70% of their portfolio focuses on individual customers.
“For these companies, the 30% limit is too small. Their SME clients, who are part of the supply chain in the industry, require a much larger limit” – Ms. Huyen affirmed that there is significant room for credit growth in the SME segment.
Accordingly, the IFC, in collaboration with the World Bank Group, has proposed to the SBV to increase the outstanding balance limit, and this proposal is under consideration.
“Hopefully, in the future, in the next one to two years, non-bank credit institutions in Vietnam will grow stronger. We will have policy discussions with the SBV to help finance companies develop in Vietnam and increase the lending value for SMEs”, said Ms. Huyen.
At the same time, Ms. Huyen expressed her hope that the Ministry of Finance and the SBV would engage in discussions and sign agreements to securitize receivables and promote their development. This would also expedite the banks’ divestment process.
To support this argument, Ms. Huyen mentioned that she had listened to opinions from Vietnamese commercial banks wishing for opportunities to divest and disburse.
After a bank signs a loan contract, it can then sell that loan contract to another bank.
In addition, Ms. Huyen mentioned that Vietnam already has a circular on debt trading, but in reality, this circular has not been fully operationalized.
Ms. Huyen expressed that the number of banks and non-deposit-taking organizations in Vietnam is still limited. For example, the United States has 5,177 banks and non-deposit-taking organizations, while Mongolia, a developing country, has 530 non-deposit-taking lending institutions.
Recalling the year 2005, Ms. Huyen shared: “At that time, more than 90% of loans in the Vietnamese market were based on real estate collateral.”
“However, after the IFC made changes and introduced new solutions, along with sessions to guide the shift from real estate lending to movable asset lending, over 30% of loans are now secured by movable assets. Capital financing with movable asset collateral is the process of converting assets or cash.”
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