General opinion of two subjects | Bank's opinion | Management staff's opinion | |||||||
Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | |
8. Enterprises do not have collateral, or if they do, the value is low enough to guarantee a loan for the entire business plan. | 197 | 150 | 76.14 | 17 | 14 | 82.35 | 180 | 136 | 75.56 |
9. Many businesses have a history of overdue debt and bad debt on CIC, so loan approval is difficult. | 197 | 77 | 39.09 | 17 | 14 | 82.35 | 180 | 63 | 35.00 |
10. Currently, commercial banks are also facing difficulties in lacking stable medium and long-term capital sources with reasonable interest rates to meet the borrowing needs of SMEs. | 197 | 130 | 65.99 | 17 | 5 | 29.41 | 180 | 125 | 69.44 |
11. Finding really good customers in the current economic recession is very difficult for banks. Businesses that want to borrow new loans have most of their collateral depleted, total profitable assets and revenue have decreased, and their scale has shrunk. | 197 | 136 | 69.04 | 17 | 17 | 100.00 | 180 | 119 | 66.11 |
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Source: Author's investigation results
3.3.2.3. The capacity of SMEs in the industry and construction sector to use loans is still limited.
The author's survey results on the borrowing situation of businesses from banks are as follows:
Table 3.25: Loan situation of SMEs in the industrial and construction sectors at joint stock commercial banks
Unit | 2013 | 2014 | 2015 | |
1. Number of general investigation units | DN | 100 | 100 | 100 |
2 Number of units receiving loans | DN | 53 | 63 | 60 |
3.Total loan amount | million dong | 282,204 | 336,581 | 254,789 |
4. Average 1 enterprise | million dong | 5324.6 | 5342.6 | 4246.5 |
Source: Author's investigation results
From the table, it can be seen that about 53%-63% of SMEs in the industry and construction sector borrowed capital; on average, each enterprise borrowed 5,324.6 million VND in 2013, but by 2015, the loan amount had decreased by 1,078.1 million VND.
So what are the reasons why SMEs in the industry and construction sector in Nghe An province cannot access loans from commercial banks?
Firstly, the main reasons are related to interest rates, loan procedures and necessary loan conditions that businesses cannot meet the requirements of the bank.
Except for some interviewed businesses that do not need to borrow capital because they have enough capital for their production and business activities.
Table 3.26: Reasons why businesses cannot borrow capital from joint stock commercial banks
Unit of measure | From 2013 -2015 | |
1. Total number of businesses without loans | DN | 40 |
- Enterprises have enough capital, do not need loans | DN | 13 |
- High interest rate | DN | 10 |
- Loan procedures are difficult and cumbersome | DN | 9 |
- Other reasons | DN | 8 |
Source: Author's investigation results
Regarding the inability to borrow capital from banks, from 2013 to 2015, 40 enterprises did not borrow capital, of which 13 enterprises had no need, accounting for 32.5%; reason
Due to interest rates, 10 enterprises, accounting for 25% of the surveyed enterprises; due to difficult and cumbersome loan procedures, 9 enterprises, accounting for 22.5%; other reasons, 8 enterprises, accounting for 20%. This shows that interest rates and lending procedures of banks have not yet created favorable conditions for enterprises to access capital.
The following table shows that the biggest difficulty from the perspective of businesses in borrowing capital from joint stock commercial banks in Nghe An province is the issue of interest rates. Interest rates have decreased but are still higher than the profitability of businesses, with 77% of businesses assessing. Interest rates for Vietnamese businesses compared to other countries in the region are very high, from about 1.4-2 times, which makes it difficult for Vietnamese goods to compete with other countries. However, the immediate problem is that with high interest rates, businesses have to pay a large amount of money for borrowing costs, in which the ability of businesses to produce profit is not enough to pay, so interest rates are still one of the important reasons for access to capital for most businesses, especially newly established businesses. Meanwhile, from the managers' point of view, the biggest obstacle for businesses when accessing bank loans is that businesses do not have the capacity to access loans.
Then there are the obstacles related to difficulties in financial reserve plans, leading to overdue debt, bad debt, making it more difficult to access bank loans. This obstacle is assessed at about 61.07% according to the general opinion of managers and businesses, of which 77.22% of interviewed managers answered yes and 32% of businesses answered yes.
Besides high interest rates, loan procedures are obstacles that businesses often encounter and complicated loan conditions cause businesses to be hesitant when going to banks to borrow capital.
Table 3.27: Difficulties of enterprises in borrowing capital at commercial banks in Nghe An province at present
General opinion of two subjects | Business Opinion | Management staff opinion | |||||||
Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | |
1. Small loan amount, not meeting the capital needs of the business | 280 | 147 | 52.5 | 100 | 42 | 42 | 180 | 105 | 58.33 |
2. High cost of borrowing | 280 | 116 | 41.43 | 100 | 31 | 31 | 180 | 85 | 47.22 |
2.1. High interest rates, | 280 | 133 | 47.5 | 100 | 36 | 36 | 180 | 97 | 53.89 |
2.2. High borrowing transaction costs. | 280 | 92 | 32.86 | 100 | 25 | 25 | 180 | 67 | 37.22 |
3. Complicated loan conditions | 280 | 161 | 57.5 | 100 | 62 | 62 | 180 | 99 | 55.00 |
3.1. Complicated loan approval and disbursement process | 280 | 127 | 45.36 | 100 | 32 | 32 | 180 | 95 | 52.78 |
3.2. Regulations on mortgaging assets formed from loan capital have complicated procedures | 280 | 139 | 49.64 | 100 | 46 | 46 | 180 | 93 | 51.67 |
3.3. Provisions on collateral (owned or secured by a third party for the loan) are undervalued. | 280 | 162 | 57.86 | 100 | 55 | 55 | 180 | 107 | 59.44 |
4. The business plan is not really effective and cannot convince the bank to lend. | 280 | 170 | 60.71 | 100 | 43 | 43 | 180 | 127 | 70.56 |
5. Loan interest rates have decreased but are still higher than the business's profitability. | 280 | 197 | 70.36 | 100 | 77 | 77 | 180 | 120 | 66.67 |
General opinion of two subjects | Business Opinion | Management staff opinion | |||||||
Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | Total number of responses | Number of responses yes | Proportion % | |
6. Burden of old debt with high interest rates | 280 | 128 | 45.71 | 100 | 26 | 26 | 180 | 102 | 56.67 |
7. Large inventories, many bad debts | 280 | 135 | 48.21 | 100 | 29 | 29 | 180 | 106 | 58.89 |
8. Many newly established businesses do not have much capacity, so accessing loans is difficult. | 280 | 193 | 68.93 | 100 | 47 | 47 | 180 | 146 | 81.11 |
9. Enterprises do not have financial backup plans, leading to overdue debt and bad debt, making access to loans even more difficult. | 280 | 171 | 61.07 | 100 | 32 | 32 | 180 | 139 | 77.22 |
11. Commercial banks are too cautious, afraid of bad debt. The credit policies of most commercial banks are currently too restrictive for customers with "traditional" customers with clean records (no overdue debt/bad debt), so they limit lending to new businesses, or those entering credit relationships for the first time. | 280 | 140 | 50 | 100 | 31 | 31 | 180 | 109 | 60.56 |
12. Banks are cautious in approving loans, only lending to businesses with high interest rates and short terms to avoid risks. | 280 | 131 | 46.79 | 100 | 36 | 36 | 180 | 95 | 52.78 |
Source: Author's investigation results
Second, the capital usage capacity of business owners is limited.
The purpose of borrowing capital of SMEs reflects the plans, intentions and methods of using the capital borrowed from banks. The clear purpose of borrowing capital of enterprises will make it easier for banks to evaluate and provide capital to enterprises. In addition, the clear purpose of borrowing capital is one of the bases for creating trust for banks when providing capital.
However, survey results from banks and state managers show that their assessment of the actual achievement of criteria related to the capacity to use loans of SMEs in the industrial and construction sectors is relatively low: reaching a fairly average level compared to the importance that businesses need to meet. In which, issues such as using loans for the right purposes, the ability to manage loan sources, the ability to manage loan risks, loan use plans, methods and procedures for project implementation, and the ability to use capital effectively of businesses need to be improved. See details in Table 3.28.
Table 3.28: Difficulties and limitations in the capital use capacity of SMEs in the field of Industry and Construction
Average score of actual assessment achieved today | |||||
Total opinion | Average score common army | In there | |||
M1 | M2 | M3 | |||
1. Enterprises have clear borrowing purposes | 297 | 3.3 | 3.38 | 3.29 | 3.24 |
2. Enterprises use loan capital for the right purpose | 297 | 3.24 | 3.44 | 3.06 | 3.23 |
3. Ability to manage business loan capital | 297 | 3.12 | 3.35 | 2.88 | 3.12 |
4. Enterprise's ability to manage loan risk | 297 | 2.94 | 3.01 | 2.94 | 2.88 |
5. Project implementation process, business loan usage plan | 297 | 3.0 | 3.14 | 2.82 | 3.04 |
6. The enterprise's ability to use capital effectively | 297 | 3.15 | 3.4 | 2.94 | 3.12 |
Source: Author's investigation results
In reality, many businesses borrow capital for the wrong purpose or use the borrowed capital ineffectively, and bad debts of banks tend to increase when bank loans cannot be recovered, according to the assessment.
According to the managers of state management agencies, the importance of using loans for the right purposes has a very high average score of 4.61/5 points. However, the current achievement according to the assessment of managers of state management agencies is only at a fairly average level: 3.23 points.
In addition, a part of the enterprise's management staff started out as engineers and skilled workers who opened their own businesses, at that time, they did not have any experience in production and business activities. In addition, the capital scale of SMEs is quite low, the use of capital for improper purposes is likely to occur when enterprises need to rotate capital. That, invisibly causes difficulties for SMEs that later borrow capital because banks will tighten their lending procedures, the assessment score for this criterion is only 3.13/5 points from the perspective of state management agencies. Regarding the ability to manage loan capital of SMEs: Business owners are often engineers or technicians who set up and operate their own businesses, they are both business managers and directly involved in production, so the level of expertise in management is not high. Sometimes, the separation between departments is not clear, and department managers are often directly involved in the production process. Most business owners have not received any formal management training, and some have not even received any training, but they often do not care about training to improve their management capacity. According to banks' assessment, this indicator is actually very low, with an actual rating of 2.88/5 points.
Regarding the ability to implement projects and production and business activities of SMEs: Due to the limited capital of SMEs and the poor access to loans, SMEs have difficulty in applying new machinery and technology to production and business. Therefore, the production and business capacity of SMEs is very small, making it difficult to develop into a large brand to penetrate the world market. This indicator is actually assessed at 3.15/5 points according to the assessment of state management agencies, a relatively low assessment compared to its actual importance.
With the characteristics of SMEs and bank credit for SMEs, the credit relationship between SMEs and commercial banks has potential risks such as:
The situation of information asymmetry makes it impossible for banks to grasp the risk signs of SMEs comprehensively and fully, so banks are susceptible to losing capital when deciding to lend.
SMEs, especially small businesses, often do business based on acquaintances and are fragmented, so it is difficult for banks to detect risks in their business operations once they have disbursed funds.
The financial capacity of SMEs is limited, specifically low equity capital, so when facing difficulties, they are prone to losing liquidity, leading to difficulties in recovering bank loans. SMEs are prone to difficulties in repaying loans when there are fluctuations in the financial and monetary markets such as: inflation, economic and financial crises, etc.
The misuse of capital by SMEs also creates risks of capital loss for banks. SMEs often use loans for personal and family purposes.
SMEs often depend on a few large customers. When these customers encounter difficulties, SMEs will also encounter difficulties, thereby posing risks to the bank.
Poor financial management of SMEs also creates risks for banks in collecting loans on time.
Poor market access, especially for foreign markets. The main reason is that SMEs are often newly established enterprises, with limited financial capacity for marketing activities and they do not have many traditional customers. In addition, the market size of these enterprises is often limited to the local area, making expansion to new markets very difficult.