Removing barriers to financial leasing

Due to several hurdles to financial leasing, the outstanding financial leasing remains quite low. By the end of 2023, total outstanding financial leasing would be around VND 45 - 46 trillion, accounting for only 0.34% of total outstanding loans in the economy. Only 15,000 out of 800,000 operating businesses have employed financial leasing services.

More open regulations

Financial leasing is a financial product in which a financial leasing company gives a business operating control of an asset for an agreed-upon period. At the end of the contract, the lessee typically becomes the asset's owner, and both parties share some of the economic risks and rewards for a period of time. This is a medium- to long-term financial assistance channel with several benefits for enterprises.

Mr. Pham Xuan Hoe, General Secretary of the Vietnam Financial Leasing Association, stated that there is a high demand for financial leasing in Vietnam, with approximately 1 million firms, the majority of which are small and medium-sized, as well as more than 5 million business households.

While the Law on Credit Institutions 2024 and by-law documents went into effect on July 1, 2024, with many more open rules, this will be the driving force for financial leasing to become stronger in the next years.

According to the Law on Credit Institutions 2024, in addition to financial leasing, financial leasing companies are now permitted to lend to their customers, rather than only lending to add to working capital as previously stipulated. The Law on Credit Institutions 2024 also permits financial leasing companies to use charter capital and reserve funds to contribute capital and acquire shares in debt management and asset exploitation companies. Furthermore, financial leasing companies may perform additional economic operations as permitted by the State Bank of Vietnam...

Furthermore, according to Circular 26/2024/TT-NHNN, for financial leasing with a value of less than VND 100 million, financial leasing companies just require the lessee to specify the objective of capital use, rather than developing a business plan.

Based on these factors, Mr. Hoe estimated that the growth rate of outstanding financial leasing in 2024 might reach 20%, with total financial leasing reaching around VND 50 trillion, much higher than in 2023.

Many barriers need to be removed

However, financial leasing has experienced several challenges. For example, the Ministry of Public Security's Circular 24/2023/TT-BCA states: "A vehicle owner who is an organization or individual with headquarters or residence (permanent or temporary residence) in a locality, must register the vehicle at the vehicle registration agency in that locality." Meanwhile, all financial leasing firms are based in Hanoi and Ho Chi Minh City. That implies that if a car lessee is in another province, he or she must tow the vehicle to Hanoi or Ho Chi Minh City to finish the registration, resulting in a waste of time and money.

"According to Circular 24/2023/TT-BCA, many consumers have refused to lease financing worth more than VND 400 billion from unimplemented credit contracts owing to complications with registration procedures, plate changes, and so on. Mr. Hoe stated, "The Vietnam Finance Leasing Association has given specific ideas on remedies to this problem."

Furthermore, according to many experts, financial companies' fundraising is quite limit ed because they are only permitted to receive demand deposits and term deposits from organizations; issue deposit certificates to mobilize capital from organizations; borrow from the State Bank of Vietnam in the form of refinancing; and borrow and receive deposits from credit institutions, foreign bank branches, and so on.

Furthermore, there are still issues with the subjects and leased assets; especially, the legal restrictions for financial leasing are grouped with commercial banks, limit ing the number of customers and leased assets. Because financial leasing businesses do not have the same capital or interest rate advantages as commercial banks.

In light of commercial banks' tightening lending standards for medium and long-term loans, many experts suggest that relevant agencies should eliminate legislative barriers for financial leasing firms as soon as possible to help businesses ease pressure on medium and long-term funding sources.