Unblocking bank capital flows for Vietnamese startups

Resolution No. 68-NQ/TW identifies private economic development as a pillar of the country's economy, in which commercial banks play an important role in creating conditions for 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 Directorof OCB

In line with the government's goal of "Promoting innovation, enhancing competitiveness, and achieving sustainable development," how have banks, in your opinion, collaborated and participated in providing resources and loans to startups and innovative businesses?

Currently in Vietnam, investment funds for startups, especially in the science and technology sector, are limited. With traditional banks providing funding, lending to businesses in general and startups in particular requires collateral, which startups are almost unable to meet. Besides the ideas and guarantees from the leader, they have virtually nothing else to offer because the projects are in their early stages of implementation, have no revenue streams, and the debt-to-equity ratio is high.

In reality, lending activities to startups by domestic banks still face many obstacles and risks. This requires commercial banks to rebuild their capacity assessment framework specifically for startup clients, and to understand innovative business models in order to manage risks most effectively.

Credit rating assessments for startups in Vietnam must prioritize human resources – this is a crucial factor, representing a long-term commitment from the founder to the bank. However, commercial banks typically do not partner with startups from the initial stages, when the idea is just being conceived, due to the high risk involved, while banks must ensure compliance with the State Bank of Vietnam's regulations on credit operations.

Therefore, banks urgently need cooperation from investment funds, stakeholders, and especially government policies to create a legal framework and work together to support and find solutions to create a "foundation" for today's startups to become large enterprises in the future.

Is what he's referring to perhaps a different, more open perspective on assessing creditworthiness in a way that is appropriate to the specific characteristics of new-generation startups in Vietnam, helping them access bank capital more easily?

Actually, I think that in order to provide resources to support successful startups, banks need to have many different approaches. Among them, the human element, the business leaders, should always be prioritized.

Another important factor is cash flow. Currently, most Vietnamese banks are quite hesitant to invest in startups at a very early stage, usually supporting businesses only when they have stable cash flow and a well-established and implemented business model. However, in the future, banks' capabilities may improve, allowing them to be more confident in investing in promising startups.

Furthermore, the decision to provide funding also depends on market conditions, because in that case, both the bank and the startup are "on the same boat crossing a vast ocean," and if they encounter a "storm," reaching their destination together will face many obstacles.

Above all, banks always hope for favorable market conditions to be able to accompany startups on a long and sustainable journey, even though the profits generated from startups are "modest." What banks in general, and OCB in particular, want is to contribute to the startup ecosystem and promote the innovative entrepreneurial spirit of young Vietnamese people, in line with the government's policy.

The Banking Innovation For Startups conference was organized by OCB and Genesia Ventures investment fund.

Resolution 68 serves as a "launching pad" to help startups achieve large-scale growth in the future, with the support and resources provided by banks. Could you elaborate on this?

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, a risk acceptance mechanism is still needed for credit activities during the process of banks providing funding and resources to startups. This is essential because starting a business is never easy. Only then can banks be more confident in "opening the door" for startups to access capital. In addition, a clear mechanism is needed to protect those who follow proper procedures and responsibilities but face objective risks.

As for banks, I think that if they focus too much on traditional, heavily exploited economic sectors, 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 by pioneering new paths.

So, what kind of preparation do startups need when approaching banks to secure the resources needed to grow and become unicorns in the future, sir?

First and foremost, startups need to be transparent with information so that banks can assess their capabilities in the best and most accurate way and make informed decisions. All parties need to make an effort to achieve a common goal.

I believe this is both a challenge and an opportunity for every organization and individual to join hands in building an ecosystem for entrepreneurship and innovation, fostering the inherent strength of the domestic economy and the competitiveness of each business, including startups. To achieve this, we need a great deal of effort. And certainly, the support of commercial banks and investment funds is indispensable, acting as a solid "launching pad" and providing a "nursery" to support startups with capital, enabling them to confidently venture into both domestic and international markets.

Thank you very much, sir!

Source: https://thoibaonganhang.vn/khoi-thong-dong-von-ngan-hang-with-viet-startups-167841.html