Assessment of the Current Status of Access to Bank Credit Capital of Small and Medium Enterprises in Thai Nguyen Area in the Period of 2013

Medium-sized enterprises have the most favorable access to capital, followed by small enterprises and finally micro-sized enterprises.

4.5. Assessment of the current status of access to bank credit capital of small and medium enterprises in Thai Nguyen in the period 2013-2018

4.5.1. Results achieved

The Government's legal documents on supporting SMEs have begun to take effect, commercial banks are increasingly offering specific credit packages to SMEs according to industries and sizes with incentives in interest rates, loan sources, loan procedures and repayment periods. Thanks to that, SMEs in the country in general and Thai Nguyen province in particular have had many opportunities to access capital sources from commercial banks, demonstrated by the fact that 1,184 SMEs were able to borrow capital with a loan amount of over 30 trillion VND in 2018.

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The number of SMEs accessing bank credit sources tends to increase every year. The rate of SMEs that can borrow capital/total operating SMEs increased by an average of about 2% compared to the previous year. In which, SMEs operating in the trade and service sector are approved for the most loans, about over 60%/total SMEs that can borrow capital; Enterprises with scale of access account for over 58%/total outstanding loans of banks for SMEs in Thai Nguyen province in the period 2013 - 2018.

Outstanding bank credit for SMEs has continuously grown well in recent times, with an average annual growth rate of 22.6% per year in the period 2013 - 2018. The proportion of SME loans/total outstanding bank loans has always been over 50% per year.

The bad debt of SMEs tends to decrease gradually over the years, the ratio of bad debt/total outstanding debt of SMEs decreases by an average of 0.1%/year. The ratio of bad debt of SMEs/total bad debt of banks accounts for a small proportion of less than 20%/year - that shows that the debt repayment of SMEs is quite good, the credit safety level is high.

The quickness and dynamism of SME owners have helped businesses have many advantages in completing loan applications because they grasp the changing policies of banks and have close relationships with a number of banks in the area.

To specify the Government's policies, commercial banks have launched a number of preferential credit packages for SMEs such as: interest rate reduction, unsecured loans, and support loans.

In certain industries... thanks to that, businesses have more choices when borrowing capital from banks, cutting down on many costs.

4.5.2. Existing issues

The policy documents supporting enterprises, specifically SMEs, issued by the Government since 2016 have not yet had the expected effects due to the lack of specific decrees and circulars guiding implementation, so the implementation process in each province and bank has not been unified, causing difficulties for beneficiary enterprises.

The rate of SMEs that can borrow capital accounts for only 36.9% of the total number of SMEs operating in Thai Nguyen province while SMEs account for 95% of the total number of enterprises operating in the area - this is a limitation and shows that the level of access to capital is still at an average level.

The time to complete the paperwork is long, on average, a business needs to revise its documents 2-3 times to get a loan ( Tran Thi Thuy Linh, BIDV 2017 ), especially for businesses borrowing for the first time, meeting the loan conditions takes a lot of time and effort.

Special credit packages have not been widely deployed locally and most of them only focus on a number of industries related to agriculture or key industries, while in Thai Nguyen, the number of enterprises operating in the mining and heavy industry sectors is large.

Forms of promotion and introduction of new credit products through advertising, using social platforms, personal promotion forms... at banks are still limited to an average of 1 - 2% of total revenue/year ( State Bank Report, 2017 ) and are mainly still through close relationships with banks or on-site advertising.

4.5.3. Causes

4.5.3.1. From the State side

The situation of " hot above, cold below " is still common in many localities when the leaders in the Government are very determined to build many legal documents related to supporting businesses but the leaders of the provinces are still slow in the implementation process.

Policies to support SMEs do not have specific instructions, leading to confusion and differences in implementation at localities and banks.

The lack of information from both the State and SMEs has also affected the development of enterprises in general and access to credit in particular. The State has not fully grasped the difficulties that enterprises face because there is no information department, so there is no timely adjustment. Enterprises have difficulty accessing the Government to present difficulties in the business process and are not updated promptly on policy changes related to SMEs due to the limited regulations on information transparency for SMEs.

Lack of support services for SMEs such as: training, consulting, information... in accessing capital as well as business development.

Diversity in the capital market is still lacking and the scale is still small. Especially for SMEs in Thai Nguyen province, the number of listed enterprises on the stock market is still very small, almost no enterprises issue their own bonds for sale, which proves that the capacity of enterprises is still limited and underdeveloped.

4.5.3.2. From the bank side

In the context of an underdeveloped financial market, the demand for short, medium and long-term loans mainly relies on the banking system, while the capital mobilized by banks from the population is mainly short-term.

Some commercial banks are not really “interested” in SME customers, partly due to low credit scale and efficiency, while risks and operating costs are high. Mr. Nguyen Bao Trung, business director of Thai Nguyen branch of International Bank, said: “Currently, most banks still prefer skimming policies, which means focusing on good customers with high income, easy debt collection, and stable profits for the bank.”

70% of credit packages of commercial banks still apply collateral to limit credit risks, which is a huge limitation for businesses when they cannot fulfill requirements related to collateral procedures.

Regulations related to fixed assets are not clear, specifically related to the registration of ownership rights such as machinery, production lines, equipment... are not clear in distinguishing between personal and business assets, the assessment of asset value is not unified and there are no detailed instructions... causing difficulties for CBTD to appraise assets and businesses face many obstacles when proving ownership of assets and the value of assets being appraised.

Some documents related to financial statements and business plans are still complicated and difficult to implement, such as regulations on financial indicators, regulations in loan use plans, profit-making capacity, etc. In particular, documents in preferential credit packages and unsecured loans have quite strict regulations and businesses need to meet high requirements.

The customer information system is slow to update, information exchange between commercial banks is limited. The assessment of customer credit history is not updated regularly and has many loopholes.

4.5.3.3. From the small and medium enterprises side

The ability of SMEs to develop feasible production plans is still poor, and the financial statements' indicators do not meet the requirements of banks. Many enterprises' projects and investment plans have low feasibility and are driven by short-term profit targets, so they are not convincing to banks.

Accounting and financial reporting of a number of enterprises are still weak in terms of qualifications and awareness of compliance with legal regulations, so they are not enough to provide a basis for commercial banks to accurately assess the production and business efficiency of enterprises. Financial disclosure of enterprises is still very opaque, most SMEs do not have a standard accounting system. Enterprise reports are not audited annually, so they are not reliable enough for banks to provide capital.

The dynamism and flexibility of some business owners are still weak, so understanding of mechanisms, grasping new policies as well as preferential credit packages is still slow.

The company's products lack competitiveness, the company has not created a position or brand in the market; Legal knowledge is limited, human resources are low, technology is outdated, most of the business is short-term, transactional, weak in marketing and market research. Low risk tolerance, poor resistance to macroeconomic fluctuations.

SUMMARY OF CHAPTER 4 CONTENT

In Chapter 4, the author assessed the current business performance of banks and SMEs in Thai Nguyen province in the period of 2013 - 2018 and found that the good growth in the production and business process has helped banks and enterprises achieve many achievements. Then, the current status of access to bank credit of SMEs was analyzed through primary and secondary data. The results showed that: in recent years, the Government has had many support policies for SMEs, in which the financial support program is a major concern. Since then, the leaders of Thai Nguyen province and the State Bank of Vietnam, Thai Nguyen branch, have implemented many measures to remove difficulties in order to expand financial resources for SMEs. As a result, the number of SMEs in Thai Nguyen province accessing bank credit capital has increased in terms of the number of enterprises and the amount of loans. However, the growth rate reached about 36.9%/year while the number of SMEs accounts for 95% of the total number of enterprises in Thai Nguyen province. When using the analysis of factors affecting access to bank credit of SMEs through primary data, the author found that factors such as: business production plan, collateral, financial statements have a strong impact on access to capital. In addition, 02 important variables : Business owners handle arising situations well, Business owners always share information with employees are added to the factor of Business owner's qualifications affecting access to bank credit of SMEs in Thai Nguyen province. Analyzing the differences in enterprise size, economic sectors to access bank credit, the author found that: Medium-sized enterprises have the best access, followed by small-sized enterprises and finally micro-sized enterprises; SMEs operating in the field of trade and services have the best access to capital among the 3 groups - this is the basis for the author to propose specific solutions.

Chapter 5

SOME SOLUTIONS TO INCREASE ACCESS TO BANK CREDIT CAPITAL OF SMALL AND MEDIUM ENTERPRISES IN THAI NGUYEN PROVINCE

5.1. Viewpoints and orientations in enhancing access to bank credit for small and medium enterprises in Thai Nguyen province

5.1.1. Viewpoints and orientations for SME development in Thai Nguyen province

Implementing Decision No. 260/QD-TTg on Approving the master plan for socio-economic development of Thai Nguyen province to 2020 and vision to 2030 and Law No. 04/2017/QH14 on Supporting SMEs, Thai Nguyen provincial leaders have had the following viewpoints and orientations in developing SMEs:

- Thai Nguyen province always identifies the development of small and medium enterprises as a key task in the province's socio-economic development strategy, an important factor contributing to the transformation of the province's economic structure and labor structure. Strive to increase the contribution of this sector to the province's gross regional domestic product (GRDP), contributing to building Thai Nguyen into a developed industrial province, an economic center of the midland and mountainous region of the North with a modern economy, converging elements of a knowledge-based economy with industries oriented towards strong development in advanced technology industry, high-quality services, and high-tech agriculture.

- Develop and implement the SME Development Plan for the period 2020 - 2025 with a vision to 2030; implement solutions to improve the efficiency of production and business activities, improve financial capacity, management capacity, and market discipline of SMEs;

- Continue to promote administrative procedure reform, improve the investment and business environment, and enhance weak competitiveness indicators. Focus on developing enterprises, especially small and medium enterprises, encouraging start-ups and innovation; organize investment promotion, have open policies and mechanisms to attract potential and strategic domestic and foreign investors; strengthen dialogue to resolve difficulties and problems for enterprises.

- For SMEs operating in the industrial and construction sectors: the province needs to have measures to promote rapid and effective development, creating growth momentum.

grow and become the industry with the largest contribution to the economic development of the province. Focus on harmonizing large-scale enterprises with small and medium-sized enterprises, developing industries in rural areas. Accelerate the restructuring process of the entire industry towards focusing on in-depth investment, using new and modern technology.

- For SMEs operating in the fields of agriculture, forestry and fishery: continue to maintain an important economic sector, playing a role in ensuring people's lives and social stability. Continue to promote the transformation of agricultural structure, crop and livestock structure towards commodity production by increasing the application of scientific and technological advances; using new varieties of crops and livestock.

- For SMEs operating in the field of trade and services: increase the contribution of enterprises; Invest in and develop new services, high-end and valuable services. Promote service enterprises supporting the agricultural sector and services such as: transportation, post, telecommunications, banking and finance. Invest in enterprises operating in the tourism supply chain such as: restaurants, hotels, entertainment areas.

- Along with creating favorable conditions for existing SMEs to develop, it is necessary to continue to encourage business households to transform into enterprises, creating favorable conditions for SMEs to develop in terms of quantity, scale and quality in a sustainable direction, diversifying the types of enterprises.

5.1.2. Orientation to support small and medium enterprises in Thai Nguyen province to access bank credit sources

Realizing the importance of SMEs to the economy of Thai Nguyen province and the orientation in developing SMEs in the coming time has been realized in documents, the leaders of the Committee, Department, and State Bank of Vietnam Thai Nguyen branch have had many specific orientations based on Decision No. 1726/QD-TTg on Approving the Project to improve access to banking services for the economy as follows:

- Use local budget capital reasonably and effectively, promote thrift practice, and combat waste in budget use. Diversify forms of capital mobilization, especially capital from enterprises, capital from the people and economic sectors, by combining the State and the people, and public-private partnership (PPP).

- Mobilize external resources well for development, especially ODA capital, FDI... to build large projects that are important to the development of a number of industries, creating motivation to mobilize investment capital from other economic sectors.

- Complete the revision and promulgation of the Credit Institutions' Lending Regulations for customers, as a basis for credit institutions to innovate lending processes towards simplifying loan procedures while still ensuring loan safety and compliance with legal regulations.

- Promote financial and credit consulting services of credit institutions to support SMEs in building effective and sustainable business strategies and plans;

- Improve the financial capacity of Credit Guarantee Funds (BLTD) for SMEs, Investment and Development Funds, ensure that the provincial and centrally-run city budgets provide sufficient minimum charter capital for the Funds as prescribed; have mechanisms to attract SMEs and SME Associations in the province to participate in contributing capital and managing and operating the Fund's activities.

5.2. Trends in accessing bank credit capital for small and medium enterprises in the new situation

2017 marked a milestone with a series of policies related to supporting SMEs that were decided by the Government and came into effect, including contents related to supporting capital sources for enterprises. First of all, it is necessary to mention: Resolution No. 35/NQ-CP dated May 16, 2016 on Supporting and Developing Enterprises to 2020 with the strong determination of the Government and the expectations of enterprises nationwide. In particular, the Resolution clearly pointed out the role of the State Bank in supporting capital for enterprises, including: Building a policy mechanism to support the development of microfinance models; Innovating the lending process towards simplifying loan procedures, shortening loan processing time, reducing hassles for SMEs; Building loan programs with reasonable interest rates, encouraging the diversification of banking products and services to increase access to capital for enterprises. After more than 1 year of implementation, the Resolution has achieved some initial results such as: Creating positive changes in the ideology and awareness of the public authority apparatus with the spirit of serving and supporting business development; Gradually removing difficulties and obstacles of businesses; Improving the business investment environment.

Assessment of the Current Status of Access to Bank Credit Capital of Small and Medium Enterprises in Thai Nguyen Area in the Period of 2013 - 2018

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