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Trust and Uncertainty: A Study of Bank Lending to Private SMEs in Vietnam

Thang Nguyen, Ngoc T. B. Le and Nick J. Freeman

Asia Pacific Business Review, 2006, vol. 12, issue 4, 547-568

Abstract: This research explores the question of how -- in the absence of institutions that legitimate markets, contracts, and private property, and the lack of business data -- banks make loan decisions to the private sector. We conducted in-depth interviews with 23 bankers of state-owned and private banks in Vietnam. Our results suggests that in the absence of effective market institutions and business data, banks in Vietnam face considerable uncertainties (rather than risks) in lending to private businesses. Consequently, banks employ a combination of uncertainty avoidance, and reliance on trust, in lending to their private business clients. We also found a strong association between types of banks (state and privately owned) and uncertainty strategies, as well as strong relationships between types of banks and trust development mechanisms.

Date: 2006
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DOI: 10.1080/13602380600571260

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Handle: RePEc:taf:apbizr:v:12:y:2006:i:4:p:547-568