Vietnamese Businesses Struggle for Capital Due to Collateral Shortage; Banking Sector Urged to Shift Lending Models

Vietnamese businesses are facing significant challenges in accessing capital, primarily due to a shortage of collateral assets, according to a recent report by the Vietnam Chamber of Commerce and Industry (VCCI). This situation highlights the ongoing reliance of the financial system on traditional collateral evaluation, even as the government pushes for economic growth under its one-party system. VCCI's survey indicates that over 21% of surveyed businesses identify "access to finance" as their biggest difficulty, surpassing the global average of 17.8% and the East Asia and Pacific region's 15.7%. Furthermore, 8.2% of companies were unable to access credit or dared not apply due to unfavorable conditions, while approximately 18% could only secure a portion of their capital needs. The lack of collateral assets stands out as the most significant hurdle, with about 75% of VCCI's surveyed businesses reporting they cannot obtain loans without collateral. Ho Anh Tuan, Deputy Director of VCCI Central and Central Highlands, noted that up to 93.5% of loans in Vietnam require collateral, a figure significantly higher than the global average and regional peers like Malaysia and Thailand. This reality underscores that credit institutions still prioritize tangible assets, while lending models based on cash flow or business plans have not been widely implemented. Beyond collateral, pressure from associated costs also impacts businesses. The survey found that 56.3% of entities faced stricter credit conditions and interest rates compared to large enterprises and state-owned firms. Additionally, 46.1% experienced unfavorable changes in loan terms, and 44.5% had to pay "facilitation" fees to secure disbursement. Complicated application procedures also contribute to difficulties in accessing capital. VCCI's survey recorded that 45% of businesses found loan application procedures to be cumbersome. Many firms reported needing to settle old loans as a prerequisite for new ones, only to have their new applications stalled or have credit limits reduced. In response to these challenges, businesses are urging banks to gradually shift from collateral-based models to evaluating business efficiency and actual creditworthiness. Duong Quoc Anh, former Deputy Chairman of the National Assembly's Economic Committee, pointed out that the policy to shift towards assessing financial capacity and project feasibility has been in place for years but faces implementation difficulties due to market volatility and rising credit risks. He emphasized the importance of banks thoroughly understanding businesses' capabilities and cash flows, while businesses must also grasp the credit institutions' appraisal regulations. Le Thanh Quy Ngoc, Acting General Director of VietBank, identified "understanding the customer" as the key phrase. He stated that for this to happen, businesses must proactively be transparent about their production activities, financial situation, and the purpose of capital usage. He added that for companies with clear operational foundations, transparent cash flows, and good business histories, unsecured lending or the absence of collateral would no longer be a major issue. VietBank's representative recommended that small and medium-sized enterprises (SMEs) change their mindset, use capital for its intended purpose, and choose loan terms that align with their cash flow cycles. Furthermore, businesses need to gradually separate personal and corporate finances, perfect their accounting systems, and increase payments via bank accounts with transparent transaction histories. Source: VnExpress