Unblocking bank capital flows for Vietnamese startups

Resolution No. 68-NQ/TW identifies private economic development as a pillar of the national economy, in which commercial banks play an important role in facilitating businesses to access green and sustainable capital sources. However, for small and medium enterprises, especially startups, accessing capital sources for business development requires a more open and innovative perspective. Regarding this issue, Banking Times reporter interviewed Mr. Pham Hong Hai, General Director of Orient Commercial Bank (OCB).

Mr. Pham Hong Hai, General Director of OCB

With the spirit of "Promoting innovation, enhancing competitiveness and sustainable development" set forth by the Government , in your opinion, how have banks accompanied and participated in funding resources and lending to startups and innovation businesses?

Currently in Vietnam, investment funds for startups, especially in the field of science and technology, are limited. With capital channels through traditional banks, lending activities for businesses in general and startups in particular require collateral, while startups are almost unable to meet this requirement. Apart from ideas and guarantees from the leader, they have almost nothing because the project in the early stages of implementation has no source of revenue, and the debt-to-equity ratio is high.

In fact, lending activities for startups of domestic banks still face many barriers and risks. This requires commercial banks to rebuild a capacity assessment system specifically for startup customers, and to understand innovative business models to best manage risks.

The credit assessment department for startups in Vietnam must focus on human resources - this is a prerequisite factor, a commitment of the business owner (founder) to accompany the bank for a long time. However, commercial banks usually will not go with startups from the initial stage when the idea is just formed, because the risk is very high, while banks must ensure standards for credit activities according to the regulations of the State Bank.

Therefore, banks really need cooperation from investment funds, stakeholders, especially government policies to create a legal corridor, to accompany and support, and to find solutions to create a "pedestal" for startups today to become large enterprises in the future.

What you are referring to is a different, more open perspective and approach to be able to assess credit capacity in a way that is appropriate to the specific nature of new-generation startups in Vietnam, helping them have more favorable access to bank capital?

In fact, I think that in order to support resources for successful startups, banks need to have many different approaches. In which, the human factor, the business leader, is always put first.

Another important thing is cash flow. Currently, most Vietnamese banks are quite hesitant to decide to invest in startups at a very early stage, but will usually support businesses when they have a stable cash flow, a business model has been formed and implemented. But maybe in the future, the capacity of banks will improve, so that they can be more confident when investing in startups with great potential.

In addition, the decision to provide funding also depends on market conditions, because at that time, both the bank and the startup are "sitting on a boat crossing the ocean", if there is a "storm", reaching the destination together will encounter many obstacles.

But above all, banks always expect good market conditions to accompany them on a long and sustainable path, even though the profits from startups are actually very “modest”. What banks in general and OCB in particular want is to contribute to the startup ecosystem, promoting the creative entrepreneurial spirit of the young generation of Vietnam in accordance with the policy set forth by the Government.

Banking Innovation For Startups Conference organized by OCB and Genesia Ventures Investment Fund

Resolution 68 is a “launch pad” to help startups have the opportunity to reach large scale in the future with the companionship and resource support from banks. Can you say more about this issue?

It can be said that Resolution 68 is the "midwife", the biggest driving force supporting the development of private enterprises in general and startups in particular.

However, there is still a need for a mechanism to accept risks for credit activities in the process of banks providing capital and supporting resources for startups, which is an inevitable part because starting a business has never been easy. Only then can banks be more bold in "opening the door" for startups to access capital. In addition, there needs to be a clear mechanism to protect those who follow the correct procedures and responsibilities but face objective risks.

As for banks, I think that if banks focus too much on traditional economic sectors that have been exploited a lot, it will create concentration and chain risks. Therefore, in the current context, banks themselves must change, follow new trends and in fact, many banks in some developed countries have succeeded in exploring new paths.

So for startups, what kind of preparation is needed when approaching banks to be able to receive resource support to help them develop further, grow and become a "unicorn" in the future, sir?

First of all, what startups need to do is to be transparent with information so that banks can evaluate their capabilities in the best and most accurate way and make decisions. All parties need to make efforts to reach a common goal.

I think this is both a challenge and an opportunity for each organization and individual to join hands to build a startup ecosystem, innovation, and create the internal strength of the domestic economy, the competitiveness of each enterprise, including startups. To do this, we need a lot of effort. And certainly, it cannot lack the support of commercial banks and investment funds to become a solid "launching pad", creating a "cradle" to support capital for startups, so that businesses can confidently venture into the domestic and international markets.

Thank you very much!

Source: https://thoibaonganhang.vn/khoi-thong-dong-von-ngan-hang-voi-cac-startup-viet-167841.html