Tóm tắt Luận án Bank credit to small and medium enterprises in the Vietnamese unstable macroeconomy

STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING ACADEMY OF VIETNAM ---------- NGUYEN VAN LE BANK CREDIT TO SMALL AND MEDIUM ENTERPRISES IN THE VIETNAMESE UNSTABLE MACROECONOMY MAJOR: FINANCE - BANKING CODE: 62.34.02.01 SUMMARY OF ECONOMIC PHD DISSERTATION HANOI, 2014 THE DISSERTATION COMPLETED AT BANKING ACADEMY OF VIETNAM Academic Supervisors: 1. ASSOC.PROF.DR. TO NGOC HUNG Banking Academy of Vietnam 2. DR. DAO MINH PHUC State bank of Vietnam Reviewer 1: Assoc.Prof.Dr. Tran Thi Ha State Council for Professor Title Reviewer 2: Assoc.Prof.Dr. Nguyen Huu Tai National Economics University The dissertation will be defended at University level Council of Dissertation Assessment at Banking Academy of Vietnam Time: date month year 2014 The dissertation could be found at: - Library of Banking Academy of Vietnam - Vietnamese National Library 1 INTRODUCTION 1. Significance of the research In every country, small and medium enterprises (SMEs) always play an important part in the socio-economic development of the country, and Vietnam is not an exception. Recently, SMEs in Vietnam have ascertained their positions in the national economy as they account for 98% of the total number of nationwide enterprises, being the vital drive to create new jobs, mobilize social resourses for development investments, contributing to the cause of poverty elimination and poverty reduction in local provinces as well as actively supporting the development of other economic players in the economy. As for the development of SMEs, bank credit has an undebatably important role, especially as the Vietnamese economy is a bank-based market. Aware of this fact and the potential of SMEs, commercial banks have increasingly paid more attention to provide credit to this segment of enterprises. However, because of their peculiarities in terms of size and busisness activities, SMEs often experience some difficulties in gaining access to credit from commercial banks. In addition, the instabilities of the global economy and the inherent weaknesses of the domestic economy have badly impacted on the business environment of SMEs in Vietnam since 2008. The rising inflation and interest rates accompanied by falling aggregate demand have caused a big number of Vietnamese SMEs to run into difficulty, shrink their business activities, or even stop doing business and go bankrupt. Consequently, SMEs are faced with more difficulties in getting bank credit to recover their affected business activities due to the negative impacts of the unstable macroeconomy. At the same time, the deeper integration into the global economy of the Vietnamese economy has imposed some opportunites and threats on both SMEs and bank service providers to adapt to the new economic playground. That is the reason that I have chosen “Bank credit to SMEs in the Vietnamese unstable macroeconomy” as the topic of my dissertation with a view to promoting bank credit to SMEs. The dissertation shall provide the theoretical framework of, current situations of, and solutions to promote bank credit to SMEs, partly creating the solid foundation of the sustainable development of this segment of enterprises in the context of the current current challenging business environment in Vietnam. 2 2. Literature review 2.1. Foreign researches A number of research papers on bank credit to SMEs have been done worldwide. They have provided quite standard theories about bank credit to SMEs in various respects such as credit products, effects of bank credit, the dependence of SMEs on bank credit, etc in different economic conditions. 2.2. Domestic researches The operation of the Vietnamese SMEs in general and credit to this kind of enterprises in the unstable macroeconomy have been receiving a lot of concern in recent articles and research papers. However, these researches have for the most part analysed in very narrow scope of research or a certain aspect of business activities, and not focused on a comprehensive set of relating issues of bank credit to SMEs. 3. Research Objective 3.1. In theory: (i) To provide systematically theoretical framework of bank credit to SMEs in unstable macroeconomy, and (ii) To draw the most valuable and suitable lessons for bank credit to SMEs in Vietnam from international experiences. 3.2. In practice: (i) To analyse the environment for bank credit to SMEs in the unstable macroeconomy of Vietnam; (ii) To analyse and evaluate comprehensively the bank credit to SMEs in the unstable macroeconomy of Vietnam; (iii) To propose some solutions and recommendations to promote bank credit to SMEs in the unstable macroeconomy of Vietnam. 4. Subjects and scope of the research The dissertation focuses on bank credit to SMEs in the unstable macroeconomy of Vietnam from 2008 to 2013, the period in which the banking activities in general and bank credit to SMEs in particular were suffered from remarkable impacts of the domestic macroeconomic instabilities. 5. Research methodology In addition to the methods of dialectical philosophy and historical materialism which are usually used in doing research in general, a complete set of methods of statistics, comparision, analysis, generalization, deduction, induction, and illustration by tables and charts are used to make the dissertation more scientifically convincing. An econometric model is also regressed to prove the hypotheses about bank credit to SMEs. 6. Contributions of Dissertation In terms of theory, the dissertation has systematically approached 3 issues relating to growth of bank credit to SMEs in challenging macroenomic environment. In terms of practice, the dissertation has made use of an econometric model to conduct an insightful analysis of the ability to promote bank credit to SMEs in the context of unstable macroeconomy of Vietnam, consequently providing the most suitable solutions to the current situtations in Vietnam. The results show that SMEs has had to face substantial financial risks because of their decreasing profits accompanied by increasing interest expenses in the unstable macroeconomy of Vietnam. 7. Chapter Layout of Dissertation Besides the introduction, conclusion, and references, the dissertation is organized in three chapters as follows: Chapter 1: Theory of growth of bank credit to SMEs in unstable macroeconomy Chapter 2: Growth of bank credit to SMEs in the unstable macroeconomy of Vietnam Chapter 3: Solutions and recommendations to promote bank credit to SMEs in the unstable macroeconomy of Vietnam. 4 Chapter 1 THEORY OF GROWTH OF BANK CREDIT TO SMEs IN UNSTABLE MACROECONOMY 1.1. BANK CREDIT TO SMES 1.1.1. SMEs and their role in economy 1.1.1.1. The concept of SMEs Table 1.1: Enterprise classification Microenterprises Small enterprises Medium enterprises Number of employees Total capital Number of employees Total capital Number of employees I- Agro- forestry and seafood ≤ 10 ≤ 20 billion VND >10 ≤ 200 > 20 billion VND ≤ 100 billion VND > 200 ≤ 300 II- Industry and construction ≤ 10 ≤ 20 billion VND >10 ≤ 200 > 20 billion VND ≤ 100 billion VND > 200 ≤ 300 III- Trade and services ≤ 10 ≤ 10 billion VND >10 ≤ 50 >10 billion VND ≤ 50 billion VND > 50 ≤ 100 Source: Decree No. 56/2009/NĐ-CP 1.1.1.2. Characteristics of small and medium enterprises These are main characteristics of SMEs: (i) small scale of operations and financial potential; (ii) varied kinds of enterprises, industries and business sectors; (iii) inefficient business strategy, limited scientific and technical qualifications and weak competitiveness; (iv) heavily dependent on the change of business environment; (v) simplify and highly flexible management system, but low managerial competency. 1.1.1.3. The role of SMEs to economy SMEs play a vital role in the economic growth and in consider as an indispensable part of the economy of each country. Their mission includes: (i) creating jobs and reducing the rate of unemployment; stablizing and stimulating economic growth; (iii) allocating and developing local resources to restructure the economy; and (iv) increasing economic flexibility. 1.1.2. Bank credit to SMEs 1.1.2.1. The concept of bank credit to SMEs Bank credit to SMEs can be defined as the agreement between banks 5 and SMEs: banks transfer assets to SMEs through discount loans, underwriting, financial leasing, and other kinds of credit granting; then, SMEs use these assets based on the principle of reimbursement. 1.1.2.2. Types of bank credit to SMEs: (i) Based on the form of credit granting: loans, discount, rediscount, bank guarantee, factoring, leasing; (ii) Based on credit duration: short-term credit, medium and long-term credit; (iii) Based on credit guarantee: secured loans and unsecured loans. 1.1.2.3. The role of bank credit to SMEs: (i) stimulating the reproduction progress, (ii) improving the productivity of capital; (iii) setting optimal capital structure for SMEs; (iv) and increasing the competitivity of SMEs. 1.2. FUNDAMENTAL CONTENT OF GROWTH OF BANK CREDIT TO SMES IN THE MACROECONOMIC CONDITIONS OF UNCERTAINTY 1.2.1. Principle of the unstable macroeconomy The unstable macroeconomy is reflected through negative changes of the most basic variables, including inflation, growth indicator, rate of unemployment and public debt. In particular, these negative changes usually lasts for at least two years with extreme and continuous intensity. 1.2.2. Growth of bank credit to SMEs in the macroeconomic conditions of uncertainty 1.2.2.1. Concept of growth of bank credit to SMEs in the macroeconomic conditions of uncertainty The bank credit growth to SMEs in the unstable macroeconomy is a number of activities of banks to increase credit for SMEs in the attempt of satisfying the customer demand while the economy have signs of instability including: inflation, rate of unemployment, growth indicators and public debt. 1.2.2.2. Bank credit accessbility of SMEs in the macroeconomic conditions of uncertainty The bank credit acessibility of SMEs is fairly low because of their peculiarities in terms of size and busisness activities especially in the period of unstable macroeconomy. 1.2.2.3. The necessary of credit grwoth to SMEs in the macroeconomic conditions of uncertainty The unstable macroeconomy could make SMEs more vulnerable and an enormous number of enterprises fall into depression, loss, even bankruptcy. In this context, credit growth to SMEs is not only protecting 6 these enterprises from bankruptcy but also creating jobs, stimualting production activities and stablizing macroeconomy. Furthermore, growth of bank credit in the unstable macroeconomy helps commercial banks to broaden their market and increase their profit. 1.2.2.4. The criteria of credit growth to SMEs in the unstable macroeconomy * Criteria of credit balance to SMEs, including: The increase in credit to SMEs; Growth rate of credit to SMEs; Proportion of credit to SMEs. * Criteria of credit structure to SMEs, including: credit balance based on form of credit; credit balance based on types of enterprises; credit balance based on industries. * Criteria of credit quality to SMEs: overdue loans to SMEs; Ratio of overdue loans to SMEs to Total lending to SMEs; NPL to SMEs; Ratio of NPL to SMEs to Total lending to SMEs. 1.2.3. Factors affect bank credit growth to SMEs 1.2.3.1. The factors derived from banks: the credit policies of banks,capital mobilization capacity, human resources, credit information, credit process, credit risk management capacity. 1.2.3.2. The factors of economic, legal and social context: Economic factor, social factor, legal factor. 1.2.3.3. The factors derived from SMEs: financial ability, managerial competency, development strategy, knowledge and information about bank credit. 1.3. INTERNATIONAL EXPERIENCES IN GROWTH OF BANK CREDIT TO SMES IN THE UNSTABLE MACROECONOMY AND LESSIONS FOR VIETNAM In this part, the dissertation presents the experience in stimulating growth of bank credit to SMEs, especially after the effects of crisis in several countries including Taiwan, Korea and Ireland which provide lessons for Vietnam Government and banks. 1.3.1. Experiences of several countries 1.3.2. Lessons for Vietnam The dissertation draws some lessons for Vietnam, which are these following: * For State administrative organs: (i) Vietnam Government can coorporate with commercial banks to set up a framework for measuring, ranking and garanteeing SMEs which facilitate the access of bank capital in 7 the current unstable macroeconomy (ii) Government and State administrative organs have to make connection between banks and enterprises, especially SMEs in the lending process as well as assure the operational security for the whole banking system; (iii) Government should stimulate the development of capital market in order to encourage SMEs to raise capital through issuing shares, stocks and via investmend funds, reduce the denpendence on bank credit; (iv) Along with financial assistance, government have to synchronously, flexibly and effectively implement a wide range of solutions to technology, human resources, market and product quality in order to encourage the development of SMEs. * For commercial banks: (i) diversifying the form of credit granting by designing suitable product packages for different enterprises in different economic circumstances; (ii) In lending process, banks should frequently keep contact with customers in order to draw exact conclusion and avoid credit risks; (iii) proactively preventing risks from customers by using a wide range of solutions such as assisting, consulting for SMEs in improving financial management ability; (iv) collaborate with SME Association, industry associations và local SME development fund to take advantages of these organs and expand customer network. 8 Chapter 2 GROWTH OF BANK CREDIT TO SMEs IN THE UNSTABLE MACROECONOMY OF VIETNAM 2.1. GROWTH ENVIROMENT FOR BANK CREDIT FOR SMES IN VIETNAM IN UNSTABLE MACROECONOMY 2.1.1. The unstable macroeconomicbackground In the global economic crisis, Vietnam’s economy faced many instabilities, such as slow growth in quantity, low growth in quality; fluctuatedand potentially higher inflation; despite an improvement, trade balance was in deficitand instability; total of investment sharply dropped because of unfavorable investment environment and pessimistic outlook of the economy...as far as other developing countries. In spite of the fact that the government has madeto supportproduction, resolve difficulties, the results is preliminary. The weakness in financial capacity, the ability producing goods and competingneed a long time to be able to overcome. This situation implies that businesses, especially SMEs having a high sensitivity to the economic cycle will face many difficulties in maintaining their business. 2.1.2. Impact ofthe unstable macroeconomic background on SMEs activities For the business environment in Vietnam, the world economic crisis impacts considerably on SMEs, as well as banking services for these businesses. The number of businesses, most of which are SMEs, dissolved or deactivated increased. Whereas, businesses start entering also cautiously in theunstable macroeconomic situation.The businesses currently exists also faced difficulties in declining revenues and profits. They produced moderately, focused on resolving inventory instead of investing to expand production are common. This situation impacts negatively on credit growth, especially credit for SMEs. 2.1.3. The situation of SMEs raise capital in the macroeconomic conditions of uncertainty The macroeconomic instability from 2008 up to now has greatly influenced the ability to access capital to maintain and expand production and business activities of SMEs. There are many characteristics and difficulties in accessing and raising capital of SMEs. Firstly, appropriated funds from partners, customers, tax debt ... in SMEs account for a large proportion. Secondly, SMEs is difficult to access to the borrowing funds, 9 particularly borrowing from the banking system. In the third place, the equity having by issuing bonds and shares is very low in total capital. Finally, returnonly meetspartially the investment needs of SMEs. Therefore, raising capital of SMEs in Vietnam has been difficult in recent years. The channels for capital mobilization have not made stable and sustainable to meet the needs of SMEs for production and business activities. Moreover, unreasonablenessin SMEs’ capital structure also makes it to do not take advantage of debt to increase corporate value. 2.1.4. The government’s policies to growth bank credit for SMEs in the macroeconomic conditions of uncertainty 2.1.4.1. The general policies to support for SMEs In recent years, the macroeconomic instability has made the operating environment for SMEs worse, which has leaded to the difficulties in the business operations of these enterprises. Recognizing the importance of SMEs in the economy, the government has issued many policies to support enterprises in general and SMEs in particular. 2.1.4.2. The mechanisms and policies of bank credit for SMEs The implementation of a Decision No. 1231 / QD-TTgin 09/07/2012 of Prime Minister on SMEs Development Plan from 2011 to 2015, State Bank of Vietnam cooperated with otherconcerned ministries building and issuing documents and policies to encourage banks to expand credit to SMEs for removing difficulties in operating capital for SMEs. 2.1.4.2.1. The ordinary commercial credit policies 2.1.4.2.2. The policy of interest 2.1.4.2.3. The foreign exchange policy 2.1.4.2.4. The specific credit policies apply for SMEs: (1) The policies relate to underwriting activities (including guarantees of Development Bank to borrow from the commercial bank and through credit guarantee Fund for SMEs), (2) the specific credit policies for SMEs (in the field of agriculture, in disadvantaged areas and in investment, exportssectors). 2.1.4.3. The other solutions of the SBV to support credit growth for SMEs In the period between 2011 and now, the most recent is from 2013, the State Bank of Vietnam has actively implemented solutions operating monetary policy, credit policy, that not only controlled inflation, but contributed to unfreeze credit for removing difficulties for production and business activities of enterprises in general and SMEs in particular. 10 2.2. CURRENT SITUATION OF BANK CREDIT GROWTH OF SMES IN UNSTABLE MACROECONOMIC CONDITIONS 2.2.1. Overall evaluation on services provided for SMEs: Table 2.1: Assessment on providing capabilities of banking services: (scale from 1 to 5) Categories Average categories score Northern region Middle region Southern region State- owned commercial bank Joint-stock commercial bank Capital mobilization service 3.53 3.54 3.31 3.55 3.44 3.65 Credit facilities 3.58 3.47 3.30 3.69 3.56 3.60 Payment service 3.47 3.47 3.46 3.47 3.47 3.52 Investment service 2.92 2.91 2.82 2.95 3.09 2.90 Guaranteed service 3.25 3.26 3.13 3.31 3.19 3.16 Foreign Exchange service 3.11 3.15 2.84 3.20 3.16 3.11 Newly developed service 2.90 2.92 2.74 2.97 2.87 3.06 Average service score 3.25 3.25 3.09 3.31 3.25 3.29 Source: Institute of Financial Sciences Together with the expansion of Vietnam commercial banking system, banking services are becoming well-diversified with increasing quality. This development has created a positive effect on the ability to approach and consume banking services of SMEs. However, from an objective perspective, services provided by commercial banks in Vietnam have just started in asymptotic point compared with traditional services offered by foreign banks. The main profit source for commercial banks in Vietnam mostly come from credit facilities. Other services such as guaranteed transactions, leasing, co-financing contribute modestly to the total income, while the diversification process of other modern services is still at low rate. Payment services still expand at slow pace due to the incomplete modernization of 11 payment system and facilities, therefore cash transactions still account for high proportion in total. Other payments are still not highly recommended because of their inconvenience, lack of flexibility and safety. Besides, other advanced services like underwriting or trust are still at the initial phase. In such condition, the ability to approach and use advanced banking services of SMEs is certainly limited. 2.2.2. Facts about the improvement of credit facilities provided for SMEs: 2.2.2.1. The size of credit a. The expansion of credit and increase in outstanding debts The number of SMEs with outstanding debts is experiencing a decrease tendency, especially in the first 9 months of 2013, this number has downed by 80% compared to the previous year. Total outstanding debts belonged to those firms have witnessed a gradual decrease in contribution to total debts in the economy over the last 3 years, from 21,68% in 2011 to 19, 29% after the first 9 months of 2013, suggesting that the credit expansion for service firms is at a slower rate compared to that of the whole economy. b. Outstanding debts proportion owed by service firms SMEs are currently accounting for 20% to 27% total debts in commercial banks, with a gradual down since 2009. At the end of September 2013, outstanding debts owed by those firms remain at 19.29% of total debts, expected to rise in both amount and proportion in the future. 2.2.2.2. Credit structure a. Credit balance by legal forms SMEs requiring loans from the banks include joint-stock companies, state-owned businesses, limited companies, and sole proprietorships. Figure 2.8: Credit balance by legal forms Source: Author’s surveys in some of Commercial Banks 12 b. Credit balance by industries Figure 2.9: Credit balance by industries Source: Commercial Bank reports c. Credit balance by terms and currencies SMEs prefer short-term loans for their activities, with the outstanding short-term debts have increased from 65% in 2011 to 67% in 2013. On the other hand, medium and long-term debts have experienced a decrease over those 3 years. Loans in domestic currency have remained stable, with 85% of lending offers are made in Vietnamese dong. d. Credit balance by lending forms SMEs prioritize lending services based on credit limit, on times and on investment projects. Other products like factoring, discount, installment loan, underwriting still contribute inconsiderably to total credit owed by those firms. They haven’t still acknowledged much about the services available and suitable for their activities. 2.2.2.3. Credit quality Overdue debts, bad debts and mortgaged assets value of SMEs continuously increased since 2011, with a highest rise in 2012 and a slower rate in 2013. Table 2.7: Non performing loans proportion of SMEs 2008 2009 2010 2011 2012 After 9 months of 2013 Over outstanding debts 24.55% 26.34% 23.15% 21.68% 20.82% 19.29% Bad debts/ Credit debts 2.06% 1.90% 2.21% 3.10% 4.20% 4.58% Bad debts owed by SMEs/ Total credit offered to SMEs 1.13% 1.59% 1.97% 3.9% 5.00% 5.2% Sources: Annual report of The State Bank of Vietnam 13 2.2.3. Solutions to stimulate credit growth in current economic status Nowadays, with such unstable macroeconomic conditions, many banks have actively shown their support toward SMEs through their adjustment in services provided, such as changing installment period, strengthening the relationships between firms and banks, cutting down interest rate, expanding credit period. Other banks have tried different approach like offering attached convenience with existing services, together with prioritized interest rate and modern payment services. These methods are only temporary, however they demonstrate the flexibility of commercial banks in offering services, therefore contribute to diversify existing services and bring them closer to actual needs of SMEs. Together with the consolidation of traditional services such as lending, banks are progressively developing other modern services including factoring, underwriting or leasing. Moreover, other programs such as Loans for SMEs in Rural & Remote areas, Loans for Commercial Activities in Border areas are also being proceeded. 2.2.4. Empirical study on SME credit growth under unstable economic condition 2.2.4.1. Sample method and data collection Author collected data from 109 SME, which are current customers of Vietnamese commercial banks in 2010 and 2011. The sampling method is random from customer database of Vietnames commercial banks that have current credit, deposit, and transaction relationship. Figure 2.10: Sample classification by industry Source: Calculated by author Table 2.8: Sample classification by funding size Funding size Year 2010 Year 2011 0 - 10 billion 36.76% 32.35% 10-20 billion 22.06% 20.59% 20-50 billion 19.12% 20.59% 50-100 billion 22.06% 25.00% Source: Calculated by author 14 2.2.4.2. Credit growth of SME in sample Figure 2.1: Short term loan over total fund of SME Figure 2.2: Long term loan over total fund of SME Figure 2.13: Total loan over total fund of SME Figure 2.14: Total liability over total fund of SME Source: Calculated by author On average, SME in sample borrow short term loan less than 15% of total fund. In 2011, this ratio increased slightly in comparison with 2010, from 13,8% to 14,2%. SME tend to borrow short term loan rather than long term one, reflecting the Vietnamese structure of money and capital market (the capital market for issuing bonds has not developed well). Bank loan over total fund of SME in sample increased in 2011. This phenomenon occurred in information technology, industrial goods, food and beverage, construction material, and medical industries. The fact that short term liability proportion is high but credit from bank ratio is low indicates that SME faced difficulties in obtaining credit from banks. However, in the future, this a potential for banking industry as SME shift from other funding sources to bank loan. 2.2.4.3. Factors affecting bank loan ratio of SME in unstable economic condition 2.2.4.3.1. Hypotheses on factors affecting bank loan ratio of SME Author proposes seven different hypotheses on credit growth of SME as follow: 15 Hypothesis 1: there is a positive relationship between credit growth and size of enterprise Hypothesis 2: there is a positive relationship between credit growth and proportion of tangible assets of enterprise Hypothesis 3: there is a negative relationship between credit growth and non-depreciation shield of enterprise Hypothesis 4: there is a positive or negative relationship between credit growth and profitablity of enterprise Hypothesis 5: there is a positive relationship between credit growth and liquidity of enterprise Hypothesis 6: there is different relationship between credit growth and industry of enterprise Hypothesis 7: there is different credit growth rate between stable and unstable economic condition 2.2.4.3.2. Model measuring factors affecting bank loan of SME To check above hypothese, author employs ordinary least square method to regress the following model: LOANi=β0+ β1×SIZEi+ β2×TANGi+ β3×DEPRi+ β4×ROAi+ β5×LIQi+ β6×DUM1i+ β7×DUM2i+ β8×DUM3i+ β9×DUM4i+ β10×DUM5i+ β11×DUM6i+𝜀i In which: Loan is ratio of bank loan over total fund; Size is natural logarithm of total assets; Tang is ratio of tangible assets over total assets; DEPR is non-debt tax shield, measured by dividing accumulated depreciation by historical cost of fixed assets; ROA is return on assets; LIQUID is liquidity of enterprises, measured by current ratio; DUM1, DUM2, DUM3, DUM4, DUM5, DUM6 is industry dummy variables for information technology, consumable goods, industrial goods, energy, food and beverage, construction material; and 𝜀 is error term. Author divides observations in two parts with assumption that the economy in 2010 was stable while in 2011, the economy was unstable. By using this method, author can evaluate the factors affecting ratio of bank loan over total fund of SME in two different periods. Hypothesis 1: there is a positive relationship between credit growth and size of enterprise Hypothesis 2: there is a positive relationship between credit growth and proportion of tangible assets of enterprise Hypothesis 3: there is a negative relationship between credit growth and non-debt tax shield of enterprise 16 Hypothesis 4: there is a positive or negative relationship between credit growth and profitablity of enterprise Hypothesis 5: there is a positive relationship between credit growth and liquidity of enterprise Hypothesis 6: there is different relationship between credit growth and industry of enterprise Hypothesis 7: there is different credit growth rate between stable and unstable economic condition Table 2.9: Summary of hypothese and expected sign of independent variables Hypothese Independent variables Expected size H 1 A positive relationship between credit growth and size of enterprise SIZE + H 2 A positive or negative relationship between credit growth and profitablity of enterprise PROFIT +/- H 3 A positive relationship between credit growth and proportion of tangible assets of enterprise TANGI + H 4 A positive relationship between credit growth and liquidity of enterprise LIQUID - H 5 A negative relationship between credit growth and non-debt tax shield of enterprise NDTS - H 6 Different relationship between credit growth and industry of enterprise DUM +/- Source: Summarized by author 2.2.4.3.3. Results of model measuring factors affecting bank loan of SME Model result is shown in table 2.10. The statiscal significance of independent variables: The regression result shows that asset size, non-debt tax shiled, and liquidity have clear impact on bank loan of SME in 2010. In 2011, only asset size and liquidity are varibles affecting bank loan of SME. Similarly, industry dummy varibles such as information and techonology, consumable goods, energy and construction material industries are statistically different. However, in 2011, there was no such difference, except energy industry. Table 2.10: Regression results in 2010 and 2011 Year 2010 Year 2011 Variable Coefficient t-stat p-value Biến Variable Coefficient t-stat SIZE 0.0251 5.0733 *** SIZE 0.0171 3.4855 *** TANG -0.0541 -0.4255 TANG 0.1096 0.8021 17 DEPR -0.2358 -3.0347 *** DEPR -0.1342 -1.5373 ROA -0.1931 -0.6825 ROA -0.0510 -0.1552 LIQ -0.0257 -3.6825 *** LIQ -0.0224 -2.3781 ** DUM1 -0.3221 -2.6908 *** DUM1 -0.2038 -1.5066 DUM2 -0.3409 -2.8086 *** DUM2 -0.2055 -1.5467 DUM3 -0.1120 -0.9908 DUM3 -0.0633 -0.5066 DUM4 -0.3942 -2.6865 *** DUM4 -0.2846 -1.7400 * DUM5 0.0822 0.6613 DUM5 0.1731 1.2317 DUM6 -0.3737 -3.4470 *** DUM6 -0.1987 -1.6495 Source: Calculated by author Coefficient sign of variable: In 2010, coefficient’s signs and statistical significance confirm hypothese H1, H2, H4, H5, H6 and reject H2. In 2011, H1, H4, H5 are accpected while H2 and H3 are rejected. Size of coefficients: In 2011, SME who expanded firm size did limit loan from bank and relied on owner’s contribution. The coefficient of size decreases from 0,0251 to 0,0171 while the coefficient of profitability goes down from 0,1931 to 0,051. In unstable economic condition, high cost of bank loan and low profitability force SME to depend on internal funds. Bank are more cautious when appraising financial capacity of customers. Fixed asset coefficient increases from 0,0541 to 0,1096, indicating that banks pay more attention on value of fixed assets as collateral for the loan. Non-debt tax shield does not have impact on bank loan in case of unstable economic condition. Similarly, the difference in bank loan between different industries does not exist as the high correlation between industries. Credit from the bank has a negative relationship with enterprise profitability but at a lower level. However, taking advantage of bank loan brings more benefits for enterprises than other non-interest bearing liabilities. Table 2.11: The relationship between debt, bank loan ratio and enterprise profitability in 2010 and 2011 Total liabilities Short-term liabilities Long-term liabilities Short-term loan Long-term loan ROA 2010 -0.2876 -0.2394 -0.1285 -0.0819 -0.0716 ROA 2011 -0.3802 -0.3645 -0.0648 -0.0023 -0.0195 ROE 2010 0.2157 0.1725 0.1040 0.2075 0.1555 ROE 2011 -0.0043 -0.0667 0.1003 0.1633 0.1075 Source: Calculated by author 18 2.3. GENERAL ASSESSMENT ON CREDIT GROWTH TO SMES IN THE UNSTABLE MACROECONOMY 2.3.1. Achievements Firstly, credit services for SMEs have brought benefits to commercial banks. Secondly, many banks concentrated on developing credit services for SMEs. Thirdly, credit structure for SMEs has been positively changed which leads to the improvement of bank credit growth to SMEs. Forthly, the banks significantly altered their credit policies towards SMEs and implemented various preferential loan packages to SMEs. Fifthly, the banks established their own customer policies for SMEs lending which partially remove the diffenrence between industries, SMEs and big enterprises. Sixthly, besides domestic capital, the banks actively seek for fund from international financial institutions and NGOs in order to obtain capital loans with low interest rates to reduce lending cost for SMEs. Seventhly, accompanied services of credit activities to SMEs have been more convenient to build trust and close relationship between banks and SMEs. Eighthly, Vietnamese commercial banks start to pay attention to boost modernization, apply science technology advances in exploiting retail market, enhance assess to individual customers and SMEs. 2.3.2. Disadvantages and causes 2.3.2.1. Disadvantages Firstly, NPL ratio of SMEs at commercial banks is always higher than NPL ratio of other kinds of customers. Secondly, the process of credit restructuring to SMEs based on industries is still low. Thirdly, financial ability of the Vietnamese commercial banks are low, although most of them meet the standard of charter capital (VND 3.000 billion). Fouthly, there are some similarities in development approaches of commercial banks to credit products for SMEs. Fifthly, the collaboration among commercial banks in exercising new banking services is still ineffective. 19 2.3.2.2. Causes of disadvantages Causes from SMEs - SMEs are the most vulnerable customers which could be easilly reduced in operating scale, even be faced the risk of bankruptcy in the unstable macroeconomy. This leads to the difficulty of credit activities to SMEs both in credit growth and credit quality. - Weaknesses in internal financial management of SMEs Causes from commercial banks - The banks have not established an overall strategy for SME credit growth yet. - Credit process of the banks are not specific to SMEs. - Credit programs designed for SMEs are not suitable for the characteristics of SMEs. - The promotion of commercial banks about modern banking services does not attract customers. - The new product design and introduction is limited. - Risk management ability of commercial banks towards SMEs is incompetent. 20 Chapter 3 SOLUTIONS AND RECOMMENDATIONS TO PROMOTE BANK CREDIT TO SMEs IN THE VIETNAMESE UNSTABLE MACROECONOMY Chapter 3 of the dissertation presents three main issues including guidelines on bank credit to SMEs in Vietnam in the years to come, solutions to promote bank credit to SMEs in the Vietnamese unstable macroeconomy, and some accompanied recommendations. The guidelines on bank credit to SMEs in Vietnam in the upcoming years are determined based on the guidelines on the development of Vietnamese SMEs, on bank credit to SMEs in the context of unstable macroeconomy, and on bank credit to SMEs from the State Bank of Vietnam and Vietnamese commercial banks. Based on these above mentioned guidelines and the drawbacks which are pointed out in Chapter 2, this chapter provides a set of solutions comprised of two main groups: (i) Strategic solutions and (ii) Specific solutions to promote bank credit to SMEs in the unstable macroeconomy of Vietnam. The strategic solutions include (i) the development of the process of providing bank credit to SMEs, (ii) the tools to implement the strategy to promote bank credit to SMEs, and (iii) the evaluation of capital absorption of SMEs in the Vietnamese unstable macroeconomy. The specific solutions inlude (i) the preparation of capital to meed the borrowing needs of SMEs, (ii) the development of suitable credit policy for SMEs, (iii) the development of standardized process of providing bank credit to SMEs, (iv) the quality-approached bank credit to SMEs, (v) the implementation of good customer policy to attract SMEs; (vi) the establishment of marketing campaigns to polish the brand images of commercial banks, (vii) the determination of potential SMEs for commercial Banks, (viii) the establishment of center to assist SMEs, and (ix) some other supplementary solutions. In addition, Chapter 3 presents some important recommendations for the Government, the State Bank of Vietnam, and the Vietnamese SME Association to ensure that the above solutions are implemented systematically and consitently so that the intended results could be achieved effectively. 21 CONCLUSION In the recent years, the Vietnamese SMEs have taken part in most of industries of the economy nationwide and have firmly established their vital role in the development of the Vietnamese economy as they account for about 98% of the nation’s enterprises, contribute approximately to 40% of GDP, and create about one million of new jobs every year. However, they have been the most vulnerable sector when the country had to face with macroeconomic instabilities, especially since 2008 as the economy went into the continuous spiral of instability and recession, of high inflation and low economic growth, making aggregate demand drop sharply, inventories increase to high levels, and investments for business suffer from severe shortages, etc. Facing with decreasing revenues and profits, SMEs who inherently depend on borrowing capital to operate have had increasingly serious difficulties in gaining access to bank credit. Series of SMEs have been forced to cease production, even to go bankrupt in recent years. Because of the paramount importance of SMEs to the domestic economy, it is crucial to support the recovery and development of SMEs in order to recover the whole economy to its previous stable growth path. Of all the supporting policies for SMEs, the credit policy plays a very important role because of the peculiarity of a bank-based market of Vietnam. Meanwhile, when most of Vietnamese commercial banks are following the model of retail banking, the segment of SMEs has been defined as their target customers in the years to come. In reality, credit to SMEs has been contributing greatly to the growth of the banking system in the recent years. However, because of the instabilities of the macroeconomy, the commercial banks’ credit supply to SMEs has been experiencing several difficulties. Hence, it is necessary to have researches into the growth of bank credit to SMEs in the unstable macroeconomy conducted in order to promote the development of the Vietnamese economy in general and of SMEs and banking system in particular. The dissertation “Bank credit to SMEs in the Vietnamese unstable macroeconomy” focuses systematically on the theoretical as well as practical issues of bank credit to SMEs in the unstable macroeconomy of Vietnam. The main contributions of the dissertation are as follows. Firstly, the dissertation presents the theoretical framework of bank credit to SMEs, macroeconomic instabilities, bank credit to SMEs in the 22 unstable macroeconomy, and the factors that impact on the bank credit to SMEs in the unstable macroeconomy. Moreover, it also draw a set of valuable lessons for Vietnam in promoting bank credit to SMEs in the unstable macroeconomy from the experiences of Taiwan, South Korea, and Ireland. Secondly, the dissertation analyses and evaluates comprehensively the current situation of bank credit to SMEs in the unstable macroeconomy of Vietnam. The analysis was conducted by using qualitative method as well as quantitative method of empirical models to measure the effects of factors to the ratio of bank credit to total capital of SMEs. Subsequently, the dissertation draws several objective evaluations of the success, limitations, and causes of the limitations of the bank credit to SMEs in the Vietnamese unstable macroeconomy. Thirdly, based on the causes of the limitations of the bank credit to SMEs in the Vietnamese unstable macroeconomy as well as on the guidelines on bank credit to SMEs in Vietnam in the upcoming years, the dissertation provides a set of solutions including three strategic and nine specific solutions accompanied by some supplementary recommendations to promote bank credit to SMEs in the unstable macroeconomy of Vietnam. In summary, the dissertation has accomplished its proposed research objectives. With this dissertation, I hope to contribute to the knowledge of bank credit to SMEs in the Vietnamese unstable macroeconomy. However, because of the limitation of data, some drawbacks are inevitable in implemeting this dissertation. Moreover, because the macroeconomy in the near future is still unstable and unpredictable, other researches on this topic can be conducted to find the most suitable solutions to the updated macroeconomic developments in order to keep up the growth of bank credit to SMEs. I hope to recieve the feedbacks from other researchers to improve my dissertation and to broaden my knowledge in this research field. 23 LIST OF RELATED RESEARCH PROJECTS PULISHED BY AUTHOR 1. Nguyen Van Le (2014), Bank credit growth to SMEs in unstable maccroeconomy: international experiences and implications for Vietnam. Journal of Banking. No 140+141 in Jan&Feb, 2014. 2. Nguyen Van Le (2014), Social Responsibility: Recognition of Vietnamese commercial banks in 2012 – 2013. Journal of Banking. No 1+2 in Jan, 2014. 3. Member of industry level scientific research project 2012“Cross- ownership in Vietnamese commercial banking system: Current status, consequences and solutions”, defended at distinction level in Jan, 2014. 4. Nguyen Van Le (2013), Social responsibility of Vietnamese commercial banks. Report “Overview of banking industry in 2013, Forecast and some policy recommendations for 2014: Review of the restructurre of credit institution system”. Banking Academy of Vietnam.