Instead of lending to large companies, more and more banks have started to lend to small businesses to hedge their risks.

At several conferences on credit for enterprises, experts have said that helping small and medium-sized enterprises (SMEs) access bank loans is very important.

However, according to a report by the Vietnam Chamber of Commerce and Industry, 85-90 per cent of Vietnamese enterprises are small and micro businesses that face great difficulty in obtaining credit. Only 40 per cent of them have in fact managed to do so.

Banks are cautious about lending money to SMEs due to a lack of trust in their ability to repay.

Hoang Thu Huong of HCM City’s Binh Thanh District runs an online shop selling sweet dessert and bubble tea and two other drinks and fast food shops. She wants to expand her business but has been unable to borrow from banks, who told her that her business is small and she has no assets to mortgage.

She has been forced to borrow from other sources at high interest rates.

Small businesses like Huong’s are caught in a vicious circle: they are too small for banks to lend, but they cannot get any bigger without bank loans.

Top executives of several banks do not deny this fact, but explained that though banks are making big profits, their non-performing loan rates are still high. This was the reason for their reluctance to lend to SMEs, they said.

They said that small and micro businesses cannot seek loans based on their business performance or financial reports or secure their loans with assets.

Dao Gia Hung, deputy director of the Vietnam Prosperity Bank’s SMEs Division, said “Small businesses are often new in the market, and banks only want to lend to big businesses which have been around for several years. However, whether or not the banks lend money to those businesses depends much on their appetite for risk.”

Pave way for smaller businesses

Recently the State bank of Vietnam urged credit institutions and banks to lend to SMEs.

More and more lenders have announced credit packages for SMEs and micro businesses.

An Binh Commercial Joint Stock Bank (ABBank) allows businesses to borrow up to VND3 billion (US$132,000) or 10 per cent of their annual revenue without collateral.

Nguyen Quynh Nga, deputy director of the bank’s SMEs Division, said only big companies can meet the “traditional requirements” like collateral, high growth, and good products to get bank loans.

She said with the new package ABBank would offer unsecured loans to businesses that have expanded from household businesses to small enterprises within one year, adding that it would practically appraise their business performance rather than by looking at their books.

One of the bank’s reasons for giving more unsecured loans to SMEs is to reduce the big bets it makes on large companies, she added.

PVComBank has also announced a VND1.5 trillion package with an interest rate of 7.5 per cent.

But enterprises have to secure the loans with personal assets such as property, savings accounts or cars.

Small businesses that have expanded within six months after starting as household businesses can also apply for loans.

Nguyen Hoang Minh, deputy director of the State Bank of Vietnam’s HCM City office, said enhancing access to unsecured loans would be an effective way to help household businesses expand into enterprises.

VNS