Thu. May 26th, 2022

VietNamNet Bridge – Finance leasing companies have been operating in a risky
legal framework where they can easily lose capital because of bad debs and incur
losses.

 

Vietnam, finance leasing, bad debt, business performance, legal framework

The State Bank of Vietnam has announced on its official website about the
revoking of the operation license from ANZ/V-TRAC finance leasing company.

According to the Finance Leasing Association, the company stopped its operation
a long time ago, while the license revoking was just an administrative
procedure.

Kexim, a 100 percent foreign owned company, has also stopped its finance leasing
business. The remaining two wholly foreign owned companies have reportedly been
facing big challenges.

Domestic companies have reported big losses and high bad debt ratios. Agribank’s
Finance Leasing Company I and Agribank’s Finance Leasing Company II, Vinashin
Finance Leasing Company Ltd.

According to the National Finance Supervision Council, it is the finance leasing
companies which have the highest bad debt ratios among credit institutions. The
ratios of some companies were up to 50 percent in 2012.

Dau tu has quoted its sources as saying that most of the companies are facing
the liquidity risks, because though having small chartered capital and modest
mobilized capital, they still bought valuable assets for leasing without
requiring collaterals.

Nguyen Hoang Minh, Deputy Director of the HCM City Branch of the State Bank of
Vietnam, confirmed that a company even has lost all of its stockholder equity
when doing business.

The finance indexes of finance leasing companies show their bad business
performance. The main source of capital of the companies is the loans from the
parent banks, while the ratio of outstanding loans on the mobilized capital of
many banks was at over 100 percent.

The finance leasing outstanding loans in HCM City increased sharply in 2008 by
33.9 percent, then by 11.9 percent in 2009, by 11.34 percent in 2010 and 9.54
percent. Especially, the outstanding loans decreased in 2012.

In general, finance leasing companies only have a small market, where the main
clients are the enterprises which need specific and unpopular machines and
equipments, such as the ones used in construction, textile and garment or ships.

Ten years ago, when the first finance leasing companies were established,
analysts believed that a bright future was awaiting the companies, because this
was thought to be a reasonable way for small and medium enterprises to get
official loans.

However, the predictions have yet come true. Unable to compete with commercial
banks in mobilizing capital, operating in a risky legal framework, meeting the
obstacles in collecting debts, finance leasing companies have become “short of
breath.”

Only some finance leasing companies have reported profit. VietinBank Finance
Leasing Company, for example, made a profit of VND100 billion in 2012, and
Vietcombank’s VND60 billion.

A senior executive of Vietcombank’s finance leasing company said the current
legal framework stipulates loosened provisions on asset leasing, which is one of
the reasons that put high risks for the companies.

It’s very difficult for finance leasing companies to supervise the business
performance of clients to be sure that the leased assets can be used for the
right purposes. A lot of clients refused to pay assets back to finance leasing
companies or give assets backs in bad conditions.

In this case, according to Dam Duc Long, Secretary General of the Finance
Leasing Association, in principle, finance leasing companies can take legal
proceedings to claim their assets back. However, it would be a very time
consuming and costly procedure.

Compiled by C. V

By vivian