Mar 31, 2013

Vietnam - Finance leasing companies bog down in risky legal framework

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

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

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