New law expected to boost financial leasing

Small financial leasing deals with value from under VNĐ100 million do not need to control the purpose of capital use. Photo tinnhanhchungkhoan.vn

Experts say the amended Law on Credit Institutions will open up many opportunities for financial leasing companies.

The law, which will take effect from July 1 this year, allows financial leasing companies to establish subsidiaries to handle and exploit bad debt assets. It also states that small financial leasing deals with a value under VNĐ100 million do not need to control the purpose of capital use.

Phạm Xuân Hòe, general secretary of the Vietnam Financial Leasing Association (VILEA), expects the State Bank of Vietnam (SBV) will soon issue a decree to guide financial leasing activities under the framework of the Law on Credit Institutions so that enterprises in this industry can seize opportunities.

Besides, Hòe also expects ministries and sectors to soon resolve other problems to remove difficulties for financial leasing companies.

Circular 24/2023/TT-BCA of the Ministry of Public Security on granting revocation and registration of motor vehicle licence plates creates additional legal barriers that increase costs and reduce opportunities to promote loans in the financial leasing industry, Hòe added.

VILEA's statistics showed outstanding loans for car rentals last year totalled VNĐ6.6 trillion, an increase of 17.3 per cent against 2022. According to preliminary statistics from four VILEA member companies, the total value of contracts that could not be implemented due to Circular 24/2023/TT-BCA was more than VNĐ400 billion in 2023.

In addition, VILEA also believes that the SBV needs to reduce the risk safety ratio regulation for financial leasing companies, because the current rate of 20 per cent is too high.

Medium- and long-term capital needs of the Vietnamese economy are estimated at between VNĐ700 trillion to VNĐ1 quadrillion yearly, of which only a very small part comes from financial leasing, and most come from bank credit.

The market share of financial leasing in Việt Nam is still very small while financial leasing is a popular medium- and long-term capital supply channel in many developed countries.

According to VILEA’s data, the ratio of outstanding financial lease debt-to GDP in Việt Nam is very low, less than 0.4 per cent, while the rate in the United States and China is 22 per cent and 18 per cent, respectively.

Hòe said the outstanding financial lease debt in Việt Nam is still very small and cannot share the burden of providing medium- and long-term capital with banking and corporate bond channels.

According to experts, financial leasing is a good form of medium- and long-term credit as it helps enterprises easily access capital without collateral. However, in Việt Nam, small- and medium-sized enterprises do not know much about financial leasing.

In 2023, the outstanding loan of the financial company group increased by 13.75 per cent to VNĐ37.2 trillion. In 2024, the loan is expected to rise by about 20 per cent to VNĐ45 trillion.

Though the Law on Credit Institutions will open a vast market for the financial leasing industry, Hòe said financial leasing companies must take measures so that when enterprises need long-term capital, they must think about financial leasing, instead of just thinking about issuing bonds or borrowing money from banks.