Having the bad debt ratios increasing and the market share decreasing, operating in a risky legal framework are the real situation of finance leasing companies nowadays.
When the first finance leasing company began officially operating in Vietnam 10 years ago, experts thought that this kind of credit would develop strongly in Vietnam, because it really fits small and medium enterprises (SMEs) – which account for the highest proportion of businesses in Vietnam. This kind of credit has also been developing rapidly in the world thanks to its big advantage that the lenders do not require mortgaged assets from borrowers when disbursing money.
However, the prediction has not come true. Finance leasing companies have been compared as “sickly children” who have been getting worse despite great efforts. The companies seem to play no important role in the credit market, while businesses, including SMEs, mostly contact commercial banks when they need capital.
Meanwhile, according to the National Finance Supervision Council, by mid 2011, the bad debt ratio of finance leasing companies had reached 40-50 percent.
Finance leasing companies still cannot find their market segment. They simply seek clients on the credit market, where they have to compete fiercely with commercial banks – very redoubtable rivals. And it is clear that this is an unequal competition.
In late December 2011, the State Bank approved the proposal by VietinBank’s finance leasing company to increase the charter capital from 500 billion dong to 800 billion dong. Meanwhile, Vietcombank’s finance leasing company has also increased its chartered capital from 300 billion dong to 500 billion dong. The capital increase is believed to help improve the competitiveness and expand the market share.
However, analysts have commented that if comparing with the huge capital of trillions of dong owned by commercial banks, the capital levels of finance leasing companies prove to make nothing.
Dam Duc Long, Secretary General of the Vietnam Finance Leasing Company, said that finance companies now still have many problems, including the lack of qualified staff, bad governance skills and short capital. Besides, they find it very difficult to mobilize capital.
In general, the “parent banks” only give them 150-500 billion dong in capital, which is just enough for the finance leasing companies to maintain operation for several years. Meanwhile, finance leasing companies are not allowed to mobilize short term capital on the market.
The main targeted clients of finance companies are SMEs, which is really a big disadvantage for finance leasing companies. As SMEs do not have good finance supervision system, their finance reports are not audited which cannot provide reliable information to finance leasing companies for their reference before making decision.
Chair of the National Finance Supervision Council Vu Viet Ngoan has also said that finance leasing companies have been operating ineffectively because they have to operate in a more difficult environment than commercial banks.
Ngoan also said that finance leasing companies now have to operate under a risky legal framework.
The State Bank of Vietnam plans to diversify non-bank credit institutions in the future, which it believes would help ease the pressure on the banking system. However, experts have warned that the plan may be unfeasible due to the problems in the legal framework for non-bank institutions.
Long has called on the State Bank to amend the legal documents, facilitating finance leasing companies to mobilize capital from the public.
Regarding the high bad debt ratio, finance leasing companies have complained that the regulations on the right of the companies to collect their assets need to be stricter. Currently, a lot of businesses which lease assets from the finance leasing companies, sell the assets to other businesses. In these cases, finance leasing companies have to go through a lot of procedures and spend much time to reclaim their assets back.