by THANH LIEM 29/05/2023, 02:38

Getting rid of bottlenecks in finance leasing

Finance leasing is expected to be a solution for assisting enterprises, in particular small and medium-sized enterprises (SMEs), to obtain medium- and long-term loans.

Ships recalled by ALC I.

However, financial leasing operations are now quite restricted; further help is necessary to make this activity more effective.

Poor operation

While businesses need to have collateral and a viable business plan to prove cash flow for debt repayment when accessing medium- and long-term bank loans, finance leasing does not require the lessee to have collateral. Especially with this transaction, businesses do not need to spend a large amount of money at once to invest in purchasing machinery and equipment but only need to pay a small rent for each period.

Furthermore, banks only finance 60-70% of the entire value of collateral assets with medium- and long-term loans. Meanwhile, firms can be funded up to 100% of the loan amount through finance leasing...

Despite the fact that there are several benefits, financial leasing is still quite limit ed. Finance leasing's outstanding debt is currently at 30 trillion dongs, representing less than 0.3% of the total outstanding loans in the economy.

As a result, many financial leasing firms have encountered several challenges. The operation license of ANZ/V-TRAC Finance Leasing Company (which is wholly separate from ANZ Bank) was recently canceled by the State Bank of Vietnam. According to the Vietnam Finance Leasing Association, this firm has been inactive for a long time, and the license removal is only a formality.

Aside from ANZ/V-TRAC, another 100% foreign-owned finance leasing business, Kexim, has nearly completely discontinued its finance leasing operations. The remaining two 100% foreign-owned firms in this industry are likewise inefficient.

Not only do 100% foreign-owned enterprises suffer huge losses or bad debts, but many domestic finance leasing companies do as well, including Finance Leasing Company II- Agribank, Finance Leasing Company I- Agribank, Vinashin Finance Leasing Co.,ltd...

More support for finance leasing

According to the Credit Institutions Law, currently finance leasing businesses can only obtain capital by accepting deposits from organizations, bank loans, and refinancing loans from the State Bank of Vietnam... As a result, their operational capital is relatively restricted.

While the entire value of leased assets shall not exceed 30% of the total assets of financial leasing. A property's lease length is also relatively limit ed; it must be at least 60% of the period necessary to depreciate the rental property.

Furthermore, finance leasing operations have numerous potential dangers, while legal requirements for the recovery and handling of financial assets are not stringent enough to serve as a deterrent.

According to Mr. Pham Ngoc Long, General Secretary of the Vietnam Finance Leasing Association, the first challenge for finance leasing firms is locating and engaging consumers, as well as offering their services. Many businesses are unaware of finance leasing operations since finance leasing companies mainly focus on this operation, with no other activities such as taking deposits, payments, or lending. Foreign exchange services have not been provided in the near term.

Many financial experts believe that in order to develop finance leasing, the legal corridor for this operation must first be completed, such as expanding the scope of capital mobilization, creating conditions for finance leasing companies to raise enough capital to meet their operational needs, and expanding the objects for finance leasing.

"Finance leasing companies must improve the quality of their products and services, simplify procedures, design products that are appropriate for each customer... while working with machinery and equipment suppliers to create a closed sales chain that includes the seller, lessee, and finance leasing companies," an expert stressed.