The streets were ominously quiet. It had become surprisingly easy to get a table in Hanoi, a vibrant Asian metropolis. People were staying home, avoiding shops and offices, for fear of catching the virus.
It was quickly becoming clear to IFC’s country office that the outbreak of COVID-19 was having a serious impact on Vietnam’s trade-oriented economy. Through our client network, IFC was hearing that trucks were backed up at the border. Reports from the nation’s banks revealed that Vietnamese companies were feeling the pinch, with exports softening and tourism at home taking a hit.
IFC’s country team swung into action. In past global outbreaks, backstopping banks had been a critical way to keep credit flowing to companies, especially small and medium-sized businesses vulnerable to the fluctuations of the global economy. The IFC team in Vietnam figured that could be an effective rapid response. In nine working days, they put together a plan to increase trade-finance limits for four commercial banks.
The end result: $294 million in lending firepower to help Vietnam fight the outbreak.
“IFC is strongly committed to helping countries address the economic challenges triggered by the COVID-19 outbreak,” said Philippe Le Houérou, IFC’s Chief Executive Officer. “In Vietnam, our focus was to help financial institutions support local businesses, especially those in trade and supply-chain linkages.”
As the world takes stock of the scale and impact of the COVID-19 outbreak, IFC is working closely with other members of the World Bank Group to help reduce the impact on businesses and economies. The World Bank Group has made it clear that this severe public-health challenge will require coordinated action to reduce risks to people as well as maintain jobs and livelihoods in countries where supply chains are disrupted.
“At IFC, we’re not first responders. We’re not doctors. But we’re pretty good at knowing what’s going on with businesses and banks,” said Kyle Kelhofer, the organization’s country manager for Vietnam, Cambodia, and Lao PDR. “Word was getting out that increasing supply-chain disruptions were having a growing effect on the economy.”
In Vietnam, IFC's support is focused especially on local businesses in trade and supply-chain linkages. © Kibae Park/UN Photo
With its focus on the private sector, IFC is well positioned to help businesses weather the storm. IFC’s country team worked closely with their colleagues at the World Bank, as well as specialists at the International Monetary Fund and the United Nations. IFC took advantage of a tool called the Global Trade Finance Program, which helps banks cover the risk of providing trade financing to local companies in new or challenging markets. The program has been successful in supporting markets in past crises, such as the Rana Plaza fire affecting the garment sector in Bangladesh in 2013.
“Local banks see IFC support as a stamp of approval that shows we believe in our clients, and in Vietnam. We stick by our clients through the good and the bad,” Kelhofer said.
The increased trade-finance limits will help Vietnam cope “with possible liquidity constraints and de-risking trends during this challenging period,” said Han Ngoc Vu, Chief Executive Officer of Vietnam International Commercial Joint Stock Bank (VIB), one of the banks benefiting from the move. “IFC’s guarantee will help local banks significantly extend trade finance to more importers and exporters.”
IFC is still assessing what further measures can be taken to cushion the blow of the outbreak. Down the line, other options could include using longer-term tools such as risk-sharing facilities for local banks, as well as credit lines to businesses, in particular small and medium-sized enterprises, Kelhofer said. IFC is in early discussions on possible steps to support the tourism sector, he added.
The Vietnam rapid response could serve as a template for action in other countries, should that be necessary. Our East Asia and Pacific team is working on response plans across the region, leveraging IFC’s experience in past crises in Lebanon and West Africa.
IFC remains committed to delivering on the World Bank Group’s twin mission of reducing extreme poverty and boosting shared prosperity. As an engine of growth and jobs, the private sector will play a vital role in reaching those goals. Even amid the turbulence of the COVID-19 outbreak, IFC wants to ensure countries stay on the long-term path toward sustainable growth that helps improve people’s lives across a broad spectrum of society, including the most vulnerable.
in February 2020