Banks bank on property

The majority of commercial banks still rely on real estate as collateral assets for providing loans to small- and medium-sized enterprises.

The IFC, the World Bank’s private sector arm and the Vietnam Bankers’ Association, recently completed a survey of lending practices showing that 93 per cent of banks prefer property as collateral for commercial loans.
Most businesses assets, especially for small- and medium-sized enterprises (SMEs), are usually movable.
Sin Foong Wong, IFC’s country manager for Vietnam, said: “Better access to credit is crucial to achieve more widespread business growth in Vietnam, particularly for SMEs that now generate 60 per cent of GDP.
“Most of these firms cannot finance their operations through formal means because they cannot meet the collateral requirements of Vietnam’s financial institutions. Currently, Vietnamese banks rarely lend without property as collateral,” he said.
According to the survey, SMEs’ moveable assets which are worth billions of dollars, could be put to productive use and contribute to economic growth if businesses could use their assets to secure the financing they need to upgrade and expand.
To address this challenge the Ministry of Justice, with the IFC, Mekong Private Sector Development Facility (IFC-MPDF), together with the World Bank’s Foreign Investment Advisory Service (FIAS) has worked for the past year to improve the legal framework for asset based lending.
According to experts, as experience with other reforms shows, effective implementation was needed to maximise impact.
This includes computerising National Registration Agency operations for secured transactions and educating financial institutions about the reforms and how to profit from asset based lending.
Nguyen Thuy Hien, National Registration Agency director general for secured transactions (NRAST), said: “Vietnam needs to complement the legal reforms with an effective collateral registry. This will give financial institutions the quick and accurate information they need to make good lending decision.”
“Having this information available on an easy-to-access secure website will greatly enhance information flows, and make it easier for all parties involved,” she said.
NRAST is an institution under the Ministry of Justice, set up in 2001, with the objectives of undertaking administrative functions related to secured transactions (developing policy and a legal framework) and directly managing the operations of the registration agency for secured transactions, including leasing, sales with retention of ownership, and sales of the right to collect debts.
After nearly four years of operating, the NRAST has registered almost 15,000 secured transactions. Nearly 900 bank head offices and branches have registered as “regular clients” with the registry.


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