Billions of dollars in cheaper bank credit are available to Vietnam’s SMEs, but for many businesses, collateral, financial records and cash-flow requirements are keeping the door firmly shut.
Vietnamese banks are offering hundreds of trillions of dong in preferential loans to small and medium-sized enterprises, but collateral requirements, financial records and the ability to demonstrate cash flow remain formidable barriers for many businesses.
Lam Ngoc Tuan says SMEs continue to face difficulties accessing cheaper financing. Photo: Thu Ha
Following the government’s policy direction and instructions from the State Bank of Vietnam, the banking system is stepping up preferential credit programs for small and medium-sized enterprises (SMEs) and priority sectors.
The country’s four largest state-owned commercial banks alone have earmarked about VND220 trillion ($8.4 billion), with lending rates at least one percentage point lower than their average rates for loans of comparable maturities.
Yet behind the attractive interest rates lies a persistent concern: whether businesses can meet banks’ stringent lending standards. As a result, cheaper capital has yet to flow strongly into the small and medium-sized production sector.
Plenty of capital, but a narrow door
Speaking to VietNamNet, Lam Ngoc Tuan, director of Tuan Ngoc Agricultural Cooperative in Ho Chi Minh City, said the cooperative currently has a medium-term loan carrying an average annual interest rate of 8.5-9%. He considers that manageable given its production capacity.
Regarding preferential credit packages for SMEs and priority sectors, Tuan said the bank had proactively informed his business about cheaper loans and announced that applications for new borrowing would be accepted starting in August. Even so, he said not every business would have a realistic chance of accessing the funds.
Hoang M.C., chief executive of an import-export company in Nghe An, said his business currently has a medium-term loan from a state-owned bank at an annual interest rate of 8.6%, along with a six-month loan from a commercial bank at 11.2%.
C. said some commercial banks had recently warned that funding pressures could push lending rates higher toward the end of the year. Asked about his chances of securing cheaper financing, he gave a one-word answer: “Difficult.”
According to C., SMEs seeking low-cost financing, particularly from state-owned banks, need a strong credit history, “good-looking” financial statements and collateral commensurate with the size of the loan — requirements that many businesses simply cannot meet.
Lower interest rates, he added, do not automatically translate into stronger borrowing demand. If orders remain scarce or production is sluggish, few businesses will want to take on additional financial leverage simply because borrowing costs have fallen. Lower rates alone, therefore, may not necessarily generate fresh growth momentum for SMEs.
Similarly, a representative of a packaging manufacturer in Ho Chi Minh City said the company currently has a secured loan from a foreign-invested bank. Although its borrowing rate remains relatively favorable compared with those offered by commercial banks, it has still risen by 1-2 percentage points since June.
The representative expressed concern that if the Big Four banks’ VND220 trillion ($8.4 billion) credit packages continue to operate under traditional lending mechanisms, the money may once again flow mainly to businesses that already meet banks’ requirements rather than those most in need of capital.
Why SMEs only ‘see cheap money on television’
Dr. To Hoai Nam, Standing Vice Chairman and Secretary General of the Vietnam Association of Small and Medium Enterprises (VINASME), acknowledged that the proportion of SMEs able to access bank financing remains low, at only around 20-25%.
One major reason, he said, is that lending requirements remain heavily centered on real estate as collateral.
Dr. Nguyen Tuan Anh, a finance lecturer at RMIT University Vietnam, agreed that collateral represents the biggest bottleneck for SMEs. The experience of the 2% interest-rate support package under Decree 31/2022/ND-CP showed that disbursement remained low partly because many businesses could not satisfy conventional credit standards.
Drawing on his own experience, Tuan identified several obstacles preventing SMEs from gaining access to preferential financing.
First, many businesses still lack transparent accounting records, leaving banks without a sufficient basis to assess their financial capacity and determine appropriate credit limits. Another problem is the gap in asset valuations: banks typically approve loans equivalent to around 70% of an asset’s liquidation value, while businesses often seek financing closer to its actual transaction value.
Limited management capacity is another hurdle, while the practice of spreading cash flows across multiple bank accounts makes it harder for lenders to accurately assess a company’s true revenue position.
Rethinking credit assessment and sharing risks
SMEs face both capital shortages and a lack of suitable financing channels. Photo: Thu Ha
Despite the difficulties surrounding disbursement, Nguyen Tuan Anh said preferential lending programs, including the Big Four’s VND220 trillion ($8.4 billion) package, remain timely support from state-owned commercial banks.
Such funding can address two challenges at once: providing short-term liquidity to help businesses maintain operations and pay wages to retain workers, while lowering financing costs so they can reinvest in technology and improve profit margins.
To unlock cheaper capital, he pointed to the experience of Taiwan’s Small and Medium Enterprise Credit Guarantee Fund, where the government guarantees 80-90% of loan risks based on the viability of a company’s business plan rather than requiring real estate collateral.
He also said Vietnam’s banking system should expand cash-flow-based lending and make greater use of alternative data, including tax payment records, electronic invoices and account revenues, in credit scoring.
At the same time, Vietnam should improve the legal framework to protect credit officers from liability arising from objective risks and provide adequate resources for local credit guarantee funds.
To Hoai Nam likewise stressed that commercial banks cannot simply be asked to lower lending standards and assume greater bad-debt risks. What can change, however, is the way creditworthiness is assessed.
Banks, he said, should diversify their appraisal criteria by drawing on digital data, ranging from operating cash flows through bank accounts and electronic invoice histories to actual contracts, machinery, warehouses and intellectual property rights.
Credit guarantee mechanisms should also operate more effectively. Guarantee institutions could provide partial guarantees covering 30-50% of loans, allowing them to share risks with commercial banks.
“Most importantly, the eligibility requirements for each credit package and the reasons applications are rejected should be made transparent, so we can identify exactly where the flow of capital is getting stuck,” Nam said.
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