The International Finance Corporation (IFC), a member of the World Bank Group, on February 21 announced that it has increased trade finance limits for Vietnamese banks as a rapid response initiative to address, in advance, potential trade finance challenges triggered by the outbreak of the novel coronavirus, known as covid-19. 

The spread of covid-19 has caused business disruptions in Vietnam since the first case was announced there in late January. Apart from a fall in tourism and associated services, the epidemic has affected cross-border trade with impacts on manufacturing, agribusiness and many other sectors.

In response, IFC is supporting Vietnamese businesses by increasing trade limits for four client commercial banks – An Binh Commercial Joint Stock Bank, TienPhong Commercial Joint Stock Bank, Vietnam International Commercial Joint Stock Bank, and Vietnam Prosperity Joint Stock Commercial Bank.

The increased total limit of US$294 million will enable these banks to improve their capacity to cover payment risk in granting trade financing to local companies, mostly small- and medium-sized enterprises.

Han Ngoc Vu, CEO and member of the board of directors of Vietnam International Commercial Joint Stock Bank, says the IFC guarantee will help local banks significantly extend trade finance to more importers and exporters, some of which are credit constrained and rely on bank trade facilities to manage cash flows and purchase raw inputs. 

The IFC initiative complements the State Bank of Vietnam’s call to financial institutions to support local businesses affected by the coronavirus outbreak, particularly those with trade and supply chain linkages.

The expanded trade finance line will help mitigate trade finance risks, thus softening covid-19’s impact on the Vietnamese economy and its private sector, notes Mehmet Mumcuoglu, the IFC financial institutions group manager for East Asia and the Pacific. “Leveraging on IFC’s global experience in responding to several economic crises in the past, the decision to increase trade limits is an effort to ensure continued trade flows during this challenging phase.”

The IFC, following this fast-to-implement and flexible trade finance instrument, is exploring other interventions to mitigate covid-19’s economic impact on Vietnam and help it sustain its robust economic growth.

Vietnam has increasingly becoming a manufacturing destination for international firms looking to avoid increasing costs and regulations in China.