The move follows the signing and witnessing in Washington DC of a Memorandum of Understanding (MoU) between IFC and HDBank, a leading Vietnamese private retail bank, with the aim of boosting supply chain financing (SCF) for the country’s small and medium enterprises (SMEs). The collaboration is expected to help HDBank build an SCF portfolio of $1 billion by 2025.
The lack of working capital has been a key constraint for local businesses in Vietnam, especially SMEs which account for about 98 percent of all businesses. Innovative funding such as SCF, which creates early cash flow for suppliers and distributors by converting their sales receivables and inventories to immediate cash and allow them to obtain lower-cost financing is relatively new in Vietnam and still to reach most SMEs. The main sources of SME finance continue to be loans backed by mortgages. As a result, the share of receivables and inventory registered as movable collateral in Vietnam is just about 30 percent, significantly lower than those in the more developed markets.
“Supply chain financing that links buyers, suppliers, and financial institutions will efficiently support the trade cycles. IFC’s timely support will enable local businesses to leverage emerging trade opportunities and improve their linkages to formal supply chains, contributing to Vietnam’s economic growth,” said Thanh Pham, HDBank’s Chief Executive Officer. “It will further help HDBank realize its vision to be among the top banks in the country with a core focus on SME and retail banking, while emphasizing value chain financing and growing its anchor client base. Also, agriculture chain is an important target industry for us, especially high-tech and green agriculture.”
IFC will help HDBank grow its SCF portfolio—currently active in construction materials, agribusinesses, fast moving consumer goods as well as supporting industries and downstream petroleum distribution. Specifically, IFC will assist the bank to design an SCF strategy for the agri sector, broaden its SCF products—especially supplier and distributor financing—and bring on board anchor firms along with their suppliers and distributors, among others.
Earlier in April, IFC also provided HDBank with a $40 million trade finance line under its Global Trade Finance Program, which will improve the lender’s capacity to cover payment risk in granting trade financing to local companies, mostly SMEs. HDBank is the newest Vietnamese bank to join the program since its launch in Vietnam in 2007, which has helped the Vietnamese participating banks issue more than 1,700 guarantees valued at over $8 million to support local exporters and importers, especially during the COVID-19 period to ease the liquidity constraints for businesses and protect thousands of jobs.
“Small and medium enterprises are the backbone of Vietnam’s economy and are essential to the country’s ambition to become a regional manufacturing hub,” said Stephanie von Friedeburg, IFC’s Senior Vice President, Operations. “Our support to local financial institutions like HDBank will help SMEs in Vietnam link into global supply chains and access opportunities to grow and create jobs.”
IFC’s technical support to HDBank is part of a multi-year program to be implemented in partnership with the Swiss Secretariat for Economic Affairs (SECO) to provide in-depth advisory services to regulators, local banks and non-bank institutions to develop SCF business in Vietnam, contributing to greater market integration and supporting the SME sector’s growth in the country.
In 2021, IFC committed a $70 million five-year senior loan to HDBank to support renewable energy business. IFC and the two investment funds managed by IFC Asset Management Company—IFC Financial Institutions Growth Fund, LP and IFC Emerging Asia Fund, LP – also subscribed $95 million to a five-year convertible bond issued by the bank to support increased lending to micro, small, and medium enterprises.