IFC Promotes Trade Financing for Vietnam’s Small and Medium Enterprises
Alan Young, executive director at SSE Steel Company in Vietnam’s northern province of Hung Yen, is celebrating a good year and looking ahead to his company’s expansion.
“A good year at almost full capacity allowed us to pay bonuses to workers above their normal salaries,” Young says. “We are now planning an expansion. That project will need another 200 workers.”
SSE Steel Company imports raw materials to produce construction equipment and relies on trade finance guarantees to cover all its imports. Techcombank, a member of IFC’s Global Trade Finance Program, gave SSE unlimited guarantees worth more than $25 million in the last 12 months, allowing the company’s factories to run at full capacity all year. Without the guarantees, things could have been very different.
“Any delay in material imports will immediately affect our operations,” explains Young. “Production lines will be closed and workers will get laid off.”
Young is just one of many Vietnamese entrepreneurs to benefit from the program, which aims to promote trade in emerging markets by linking up local financial institutions with major international banks and enable the local lenders to offer more competitive financing.
In July, Vietnam Joint Stock Commercial Bank for Industry and Trade, or VietinBank, became the latest Vietnamese lender and the first state-owned commercial bank, to join the program. Since 2007, the Vietnamese participating banks have provided guarantees of $2.5 billion in trade finance, making the country one of IFC’s top trade finance markets.
Techcombank was the first Vietnamese bank to join IFC’s trade finance program in late 2007, just as the global financial crisis and tightening liquidity were limiting banks’capacity to help businesses like SSE underwrite their cross-border trade transactions. The program has helped Techcombank cover risks in granting trade financing to local companies, mostly small and medium businesses.
“Techcombank mainly serves small and medium enterprises in Vietnam,” says Do Diem Hong, a member of Techcombank’s board of management. “We are proud to be the largest user of IFC’s trade finance program, not only in Vietnam but also in Asia. The program has helped us serve more clients and be recognized internationally among the network, and increase our revenue from trade financing as well.”
The Global Trade Finance Program committed nearly $1.5 billion in the East Asia Pacific region in fiscal year 2013, with a record $800 million going to Vietnamese participating banks. Ninety percent of the transactions in the region were related to small and medium enterprises and 50 percent facilitated South-South trade flows (those between developing countries).
“By complementing banks’capacity to deliver trade finance solutions, IFC has helped ensure continued trade flows vital to private sector growth despite liquidity constraints,” says Nathalie Louat, IFC’s senior manager of financial markets in East Asia and the Pacific. “This shows our commitment to strengthening and fostering the development of Vietnam’s financial markets.”