The Level of Proactive Approach of Commercial Banks to Small and Medium Enterprises for Credit Granting

Input materials, product packaging, etc. of businesses elsewhere, while local SMEs are fully capable of supplying them.

2.2.2. The level of proactive approach of commercial banks to small and medium enterprises to provide credit

In recent years, bank branches in Phu Tho province have made many efforts to best meet the credit capital needs of the SME customer segment. Measures that commercial bank branches have implemented include promoting the development of branch networks, implementing strategies targeting SME customers, applying preferential lending interest rates for SME, encouraging commercial bank staff to actively seek and care for SME customers, actively participating in bank-business connection programs, etc.

2.2.2.1. Developing a network of bank branches serving small and medium enterprises

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To carry out the task of promoting capital mobilization, expanding lending and developing banking services, contributing to promoting the socio-economic development of the province and implementing the national monetary policy, the banking sector of Phu Tho province has focused on developing its operating network.

When province 2 was first separated , the banking system in the province only had

The State Bank of Vietnam, provincial branches, 3 branches of State-owned commercial banks (Vietinbank, BIDV and Agribank), Phu Tho regional credit funds and 27 grassroots people's credit funds. In recent times, following the direction and orientation of the province, the province has selected and created favorable conditions for commercial banks with financial potential and advanced technology to open branches; continue to consolidate, expand scale, and establish new people's credit funds, especially in remote areas. As of December 31, 2017, in addition to the State Bank of Vietnam, Phu Tho province branch, the whole province has 19 bank branches.

2 On January 1, 1997, Vinh Phu province was split into Vinh Phuc and Phu Tho.

Level I 3 , in addition, there are 39 people's credit funds operating in 61 communes, wards and towns and 6 microfinance organizations operating in the province. Of which, 17/19 level I commercial bank branches directly serve SMEs (except for the Social Policy Bank, Phu Tho branch, Development Bank, Phu Tho branch) [26]. The network of bank branches in the area has been restructured, changed to be more suitable, more widespread and better meet the needs of SMEs for using banking services.

2.2.2.2. Strategy towards small and medium enterprise customers of commercial banks

Some commercial banks have specific strategies targeting SME customers, such as BIDV, Vietinbank, etc. With the commitment to "Accompanying SMEs", BIDV has implemented many preferential lending programs to support SMEs such as the 10,000 billion VND competitive short-term credit package implemented from February 2017; 3,000 billion VND credit package to finance start-ups and micro-enterprises implemented from May 2017; The 10,000 billion preferential credit package for enterprises that are members of the Vietnam Association of Small and Medium Enterprises (VINASME) has been implemented since August 2017 and the preferential credit support programs for SMEs through exploiting capital sources from the SME Development Fund, JICA support capital from the Japanese government (SMEFP), Green Energy Development Fund (GIF), etc. For Vietinbank, with a strategy targeting SME customers, in addition to providing traditional credit products, Vietinbank also applies policies, products, and specific credit programs for this customer segment such as: Credit program

3 Including: (1) BIDV Phu Tho, (2) BIDV Hung Vuong, (3) Agribank Phu Tho, (4) Vietinbank Phu Tho, (5) Vietinbank Hung Vuong, (6) Vietinbank Den Hung, (7) Vietinbank Phu Tho Town, (8) Vietcombank Viet Tri, (9) MB Phu Tho, (10) Techcombank Viet Tri, (11) VPBank Phu Tho, (12) Maritime Bank Phu Tho, (13) Sacombank Phu Tho, (14) VIB Phu Tho, (15) Lien Viet Postbank Phu Tho, (16) Nam A Bank Phu Tho, (17) Co-opBank Phu Tho, (18) VBSP Phu Tho, (19) VDB Phu Tho.

Accompanying SME customers, Credit package "Flexible loans - fixed interest rate", Preferential loan interest rate program for start-up businesses with a scale of 3,000 billion VND; Loans for high-tech agricultural development, clean agriculture. At the same time, VietinBank also builds specialized products according to industries and locations to ensure suitability for customer characteristics such as: Loan products for industrial crops, loan program for high-tech agricultural development - clean agriculture, products for tourism businesses, textile and garment businesses, etc.

Depending on the business strategy, each commercial bank also has different criteria for screening SME customers. According to VPBank's regulations, the specific conditions for SMEs to be granted credit by the bank are that the enterprise must have been in operation for 2 years or more, have no debt from groups 2 to 5, and have a minimum revenue of 5 billion VND in the previous year. In addition, the total outstanding credit balance must not exceed 5 billion VND, the financial report of the enterprise must be confirmed by the tax authority, and the regulations on collateral depend on the plan and purpose of the loan. Maritime Bank's regulations on the criteria for screening SME customers are that the enterprise must have been in operation for 2 years or more, have a minimum revenue of 20 billion VND in the previous year, and have a maximum total outstanding credit balance of not more than 4 billion VND. The regulations on collateral depend on the plan and purpose of the loan. For some large-scale commercial banks, the specific conditions for SMEs to receive credit from commercial banks have become more flexible in recent years. Typically, Agribank has approved the consideration and granting of credit to newly established SMEs, specifying the regulations that SMEs have the financial capacity to repay debts such as businesses must operate effectively, have profits in the previous year, if there are losses or accumulated losses, there must be a feasible plan to overcome losses, no bad debts, debts have been handled at risk at Agribank and other commercial banks at the time of credit appraisal, ... and flexibly applied.

Credit conditions according to each SME loan plan. BIDV has also begun to apply SME credit expansion for new enterprises that have been in operation for 6 months or more, with mid-year financial statements (6 months) certified by the tax authority, but has limited the maximum credit balance to no more than 10 times the owner's equity and required collateral. Vietinbank has also applied loans to newly established enterprises. SMEs borrowing capital from Vietinbank must not have group 2 to group 5 debt at any bank, have no accumulated losses or have losses but the owner's equity is not negative, applicable to SMEs that are implementing investment projects.

At the same time, in recent times, commercial bank branches in the area have also actively participated in the bank-enterprise connection program to seek and support SMEs to access bank credit capital. The bank-enterprise connection program in Phu Tho province (hereinafter referred to as the Program) is held annually to help SMEs access bank credit capital, help commercial banks unblock capital flows, and strongly impact credit growth in the area. This program has achieved many encouraging results: In 2014, the lending turnover of bank branches in Phu Tho province reached nearly 2,700 billion VND with 80 enterprises accessing capital through the Program. Of which, the commitment to lend new loans is 65 customers with outstanding loans of 1,823 billion VND, reducing lending interest rates for 15 customers with outstanding loans of 877 billion VND; In 2015, 378 enterprises accessed bank credit capital through the Program with a total commitment of VND 9,456 billion, of which new loan commitments were for 282 customers with outstanding loans of VND 2,383 billion, lending interest rates were reduced for 79 customers with outstanding loans of VND 2,054 billion, and debt repayment terms were restructured for 17 customers; In 2016, the Program was implemented to address the new loan needs of over 530 enterprises with a total committed capital of over VND 20,000 billion. Continuing the success of previous years, in 2016

In 2017, 162 enterprises accessed bank credit capital under the Program with a total outstanding debt of VND 3,203 billion, of which new loans were given to 112 customers with an outstanding debt of VND 3,032 billion, and debt extensions were given to 50 enterprises with an outstanding debt of VND 171 billion.

2.2.2.3. Commercial banks proactively lower lending interest rates for small and medium enterprises

To help SMEs supplement capital to overcome the difficult period caused by the financial crisis, many solutions have been applied to promote investment activities for social development, in which reducing lending interest rates is still considered the most effective solution to promote SME credit. The lending interest rate level has been stable since 2016 until now, the current interest rate level has decreased sharply (only 40% of the interest rate at the end of 2011). When compared with some countries in the region such as Myanmar with a lending interest rate of 13%/year, Indonesia with a lending interest rate of 11.9%/year, Thailand with a lending interest rate of 6.3%/year, Singapore with a lending interest rate of 5.4%/year, the current lending interest rate level in VND in Vietnam is at a relatively reasonable level with the macroeconomic correlation [9].

14%/year

12.5

12.15

10.5

9.75 10.25

8.5

9.9

8.4

9.8

8.4

9.8

7.9

8 7.8 7.65 7.65

2013 2014 2015 2016 2017

Average short-term lending interest rate - State-owned commercial banks

Average short-term loan interest rate - Joint Stock Commercial Bank

Average medium and long term loan interest rates - State Commercial Bank

Average medium and long term loan interest rates - Joint Stock Commercial Bank

Chart 2.1. Development of average VND lending interest rates for the normal production and business sector of the commercial banking system. Source: [29] and author's calculations.

Analysis of Chart 2.1 shows that the lending interest rate for SMEs tends to decrease the fastest in the period of 2013 - 2014 and is tending to be stable, with little fluctuation. This reflects that the financial capacity of commercial banks in this period has been significantly improved, commercial banks have adjusted the mobilization interest rate down instead of sticking to the ceiling interest rate for capital mobilization as in previous years. At the same time, during this period, the State Bank has adjusted the capital mobilization interest rate ceiling for VND deposits with a term of 1-6 months twice from 7%/year at the end of 2013 to 6%/year from March 18, 2014 (Decision No. 498/QD-NHNN) and down to 5.5%/year from October 29, 2014 (Decision No. 2173/QD-NHNN). Mobilization interest rate

The decrease in interest rates has created conditions for lending rates to decrease accordingly. Currently, the common lending interest rate for priority sectors is 6-6.5%/year for short term, while state-owned commercial banks apply medium and long-term lending interest rates for priority sectors at 9-10%/year. Lending interest rates for normal production and business sectors are 6.8-9%/year for short term; 9.3-11%/year for medium and long term. For good customers with healthy and transparent financial situations, short-term lending interest rates are from 4-5%/year (Appendix 9) .

There is also a difference in lending interest rates for SMEs between the State-owned commercial banks and joint-stock commercial banks. This is because lending interest rates depend largely on the size of the commercial banks. For small-scale commercial banks, their economic advantages are less than those of large commercial banks, so they have to mobilize capital at higher interest rates and are quite sensitive to changes in interest rates. Therefore, when there is pressure to increase interest rates, small-scale commercial banks will be under pressure to increase before large-scale commercial banks.

In recent times, closely following the direction of the State Bank and the superior bank, commercial bank branches in Phu Tho province have implemented quite well the regulations on lending interest rates for SMEs. Lending interest rates for SMEs in recent years have remained stable and continued to be adjusted down. Lending interest rates for SMEs in Phu Tho province in 2017 decreased by about 0.5%/year compared to the end of 2016 [26]. The reduction in lending interest rates has contributed to stabilizing the local money market and actively supporting SMEs in overcoming difficulties and improving the efficiency of production and business activities. Obviously, the interest rates that have been continuously adjusted down in recent times have opened up many opportunities for SMEs with business capital to recover, contributing to promoting the country's economic development. Lending interest rates tending to decrease sharply in recent times have also encouraged SMEs to use more bank loans.

2.2.3. The level of initiative of the Government and Phu Tho province to support small and medium enterprises to access bank credit capital

Currently, Vietnam has a system of state agencies, associations, etc. established to support SMEs (Appendix 10) . This system includes many agencies from central to local levels such as the Council for Promoting SME Development; Department of Enterprise Development; Department of Planning and Investment of provinces/cities; ... and other agencies such as VCCI, business associations, ... have coordinated to effectively implement policies to support SMEs in accessing bank credit capital.

Understanding the role and difficulties in the production and business activities of SMEs, in recent times, the Government has issued many policies to support the development of SMEs and has increasingly promoted efficiency, having significant impacts on the development of SMEs (Appendix 11) . On November 23, 2011, the Government issued Decree No. 90/2001/ND-CP, later replaced by Decree No. 56/2009/ND-CP on supporting the development of SMEs and legalized by the Law on Supporting SMEs No. 04/2017/QH14 effective from January 1, 2018. These are the legal bases for the Government to establish the Credit Guarantee Fund for SMEs and the SME Development Fund to finance programs and projects to help SMEs access bank credit capital, maintain and develop in an integrated economy. The policy has also been amended to better suit the specific characteristics of SMEs. The Government also urges relevant ministries and branches to continue to improve and implement policies to support SMEs.

Implementing Resolution No. 35/NQ-CP of the Government on supporting and developing enterprises, the banking industry is synchronously implementing solutions in the "Project to Improve Accessibility to Banking Services for the Economy" [41]. Along with that, the State Bank of Vietnam has directed commercial banks to implement many solutions to support and reduce

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