According to the PCI (provincial competitiveness index) report released by the Vietnam Chamber of Commerce and Industry (VCCI), 46.85 percent of surveyed private enterprises said they had difficulties in accessing bank loans in 2021. The figure was higher than the 40.73 percent in 2020.

The biggest obstacle for enterprises to access bank loans is the lack of assets. At least 81 percent of polled businesses said they can’t borrow money from banks if they don’t have collateral. The other obstacles are complicated procedures and the banks’ application of credit access conditions that are disadvantageous for businesses (46 percent).

Unable to access bank loans, businesses have to seek other credit sources. Fifty-one percent of businesses seek capital from friends and relatives, and 18 percent borrow money form other businesses, or mortgage assets for loans and sell their assets. The number of businesses borrowing money from non-bank credit institutions (financial leasing companies and people’s credit funds) account for 11 percent.

Meanwhile, 4 percent of businesses said they have had to borrow money from black credit sources at very high interest rates, 60 percent per annum on average, which is six times higher than bank loan interest rates.

The PCI Report said that SMEs now account for 98 percent of total enterprises in Vietnam. The SME Support Law, which took effect on January 1, 2018, has offered modest support for enterprises and official loan access. 

Only 7.34 percent of businesses can access official loans through the Credit Guarantee Fund for SMEs.

According to the State Bank of Vietnam (SBV), as of the end of 2021, the outstanding loans to SMEs had accounted for 19.34 percent of total outstanding loans, a small figure noting that SMEs account for 98 percent of enterprises.

Meanwhile, a survey by McKinsey conducted two years ago found that SMEs in Vietnam had demand for up to $21 billion worth of capital, but 98 percent of enterprises found it difficult to access loans.

Businesses remain small as they lack capital

An enterprise making bottled drinking water in Bien Hoa City wants to scale up production, but cannot do this because of the lack of capital.

A manager of the enterprise said its workshop is located in a residential quarter, which doesn’t fit large-scale production. The enterprise has spent all its money on buying machines, technology and the development of the distribution channel. And now it doesn’t have money to expand production. It cannot borrow money from banks as its assets all have been mortgaged for loans already.

Mac Quoc Anh from the Hanoi Association of SMEs pointed out that because of the lack of capital, SMEs remain small and don’t have money to invest in technology. As a result, the majority of Vietnam’s enterprises still use outdated technologies, which are 2-3 generations behind the rest of the world.

A survey by VCCI found that over 50 percent of private enterprises borrow money from banks to cover their operating costs, and not for new machines and technology. The number of enterprises using high technologies is very low, just 2 percent, while capital for technology renovation accounts for only 0.2-0.3 percent of revenue.

The director of a wooden furniture manufacturing company in Thach That, Hanoi, said he sometimes has to borrow money from unofficial sources. He once had to mortgage his Mercedes 200 to get money to buy materials for production. The interest rates are very high but he has no other choice. 

As a result, the competitiveness of Vietnam’s enterprises is weak and profits are low. As a result, enterprises dare not think of expanding production.

According to  Dong Nai Young Entrepreneurs’ Association, most of its 500 member companies are small enterprises with revenue of several billion dong. The money  is just enough to buy land, build workshops and buy equipment. To have working capital, they have to borrow from different sources, including usurers.

According to VCCI, businesses are looking forward to the government’s credit access support packages so they can reorganize production after being heavily impacted by Covid-19.

Economists say in order to make it easier for businesses to access official loans, it is necessary to restructure financial and capital markets; enhance information transparency; build a culture of information exposure and credit ratings; promote financial infrastructure and credit rating agencies; and provide market liquidity solutions.

Tran Thuy