Why is it difficult for Dak Nong businesses to borrow from banks?

Weak collateral

One of the most common reasons businesses struggle to access bank loans is a lack of collateral. According to bank regulations, loans typically require businesses to provide collateral to secure the loan.

However, many small businesses, especially startups, do not have enough fixed assets or high-value assets to use as collateral for bank loans.

Many businesses in Dak Nong have limited collateral assets.

This is a major challenge. Because, in addition to financial statements and production plans, collateral is considered a prerequisite for banks to prioritize lending.

Dak Nong has approximately 4,700 registered businesses, of which 99% are small and micro-enterprises. Most operate in the agricultural sector. The collateral assets of these businesses are not always readily available or of high value.

The director of a commercial bank stated that assets are a necessary condition for increasing a customer's creditworthiness and borrowing capacity.

The financial reports and production plans of many businesses in the area lack feasibility.

However, most of the collateral for business loans in the province is secured by third-party assets such as business owners, relatives, or related parties. Some have collateral assets such as factories and perennial orchards, but have not yet been granted ownership rights.

"The collateral mostly only includes land use rights, with no assets on the land. This makes it very difficult for the bank to determine the value of the collateral," the director said.

In addition to secured loans, unsecured loans are now being offered to facilitate access to capital for businesses. However, this is difficult to implement because businesses do not yet meet the creditworthiness requirements for borrowing.

An Phat Trading and Service Company Limited is one of the businesses with strong potential in Dak Nong.

According to credit institutions, the recent drop in real estate prices and changes in planning have impacted the collateral assets of businesses. Some real estate businesses operating under the guise of agricultural production and trading companies have also been affected.

Along with the issue of collateral, the current production and business plans of enterprises still have many shortcomings. This is considered the biggest obstacle to building credibility with credit institutions.

Agricultural processing businesses in Dak Nong are in need of capital to support production and business operations.

In Dak Nong, most businesses have leaders and managers with limited qualifications. Their ability to grasp information, seize opportunities, forecast and respond to market developments, and develop business strategies is weak. Consequently, their production and business plans lack feasibility.

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Many businesses' financial reports lack reliability, do not meet standards, and have not been audited by a qualified third party, thus lacking credibility. This is why banks lack information about these businesses, affecting their lending decisions.

Pham Quoc Viet, Deputy Director of BIDV Bank's Dak Nong Branch, stated.

Credit institutions remain cautious.

According to the Provincial Branch of the State Bank of Vietnam, in recent times, credit institutions in the area have been hesitant to lend to businesses, especially for medium and long-term projects. The reasons are concerns about risks, difficulties in debt collection, and increasing bad debts.

Many credit institutions in Dak Nong province remain hesitant and cautious when lending to businesses.

A small number of businesses with good credit ratings and viable business plans are often sought after by credit institutions outside the province. In these cases, local credit institutions find it difficult to compete in lending policies due to pressure on interest rates.

Currently, the policy autonomy of banks in Dak Nong province is low. Most of the business lending policies being implemented depend on the head offices at the central level.

Meanwhile, Dak Nong province still has its own unique characteristics, and businesses operate in a similar way. Local banks are still passive and lack sufficient voice in advising on the implementation of specific policies for businesses in the province.

Banks in Dak Nong still don't fully trust the capabilities of businesses (Photo: LD)

Furthermore, since these banks are all branches of the head office, their lending conditions and policies must comply with the general criteria stipulated by the head office. Their ability to independently secure sufficient capital to meet the funding needs of the economy in general and businesses in particular remains low.

"Locally mobilized capital accounts for only over 41.98% of total outstanding loans. Commercial banks also have to receive capital adjustments from their head offices at a relatively high cost, affecting their ability to reduce lending interest rates and implement preferential credit packages for businesses," said Pham Thanh Tinh, Director of the State Bank of Vietnam branch in the province.

Furthermore, some loan approval processes and policies at banks are complex and time-consuming. This includes everything from collecting documents, evaluating collateral, assessing financial capacity, to loan approval…

Each step requires numerous procedures and paperwork. This discourages many businesses from meeting bank requirements, especially when they urgently need capital to meet business needs.

Capital mobilized from credit institutions in Dak Nong only meets 40% of the economy's capital needs.

Discussing the difficulties in accessing capital, Mr. Nguyen Kha, Director of Dai Dung Joint Stock Company in Cu Jut district (Dak Nong), said that the company's total investment is over 500 billion VND. However, the company has not been able to borrow a single loan from any banks in Dak Nong.

"We want the local authorities to create conditions that allow us to access bank loans. Because in the current difficult economic climate, it is impossible for businesses to invest 100% of their own capital," Mr. Kha affirmed.

There are no specific policies yet.

Besides obstacles related to businesses and credit institutions, Dak Nong has also lacked specific policies in recent times. Most of the credit policies currently enjoyed by businesses depend on those implemented by the central bank.

Some policies remain quite rigid and lack the flexibility to support small and micro-enterprises. Regulations regarding collateral, loan-to-value ratios, and appraisal criteria have not yet been adjusted to reflect the actual business practices of these enterprises.

Dak Nong has not yet issued many policies and guidelines to support businesses with capital.

On the part of local authorities, although they have directed credit institutions to facilitate and support businesses in accessing loans, there has not been much real attention paid to this.

The province has yet to issue many mechanisms and policies to support businesses with credit and capital. Furthermore, Dak Nong's budget and resources are limited, lacking the means to support businesses in their production and business development.

According to Pham Thanh Tinh, Director of the State Bank of Vietnam's provincial branch, most of the solutions to support businesses in Dak Nong are still too general in nature.

Some support policies still originate from credit institutions. Many business lending policies have not been implemented due to planning restrictions, bauxite mining issues, etc.

Meanwhile, banks in the area mostly have small branches compared to other provinces and cities, so many policy advisory documents are not substantial enough to be considered by the central government.

Banks are often concerned about a company's ability to repay its debts, especially during difficult economic times when revenue declines. This caution makes accessing bank capital more difficult for many businesses.

Source: https://baodaknong.vn/doanh-nghiep-dak-nong-vi-dau-nen-noi-kho-vay-ngan-hang-234819.html