Financial leasing firms struggle to reclaim debts

National Financial Supervisory Commission figures show bad debts  are very high at financial leasing companies. How will these firms tackle bad debts in the coming time?

We will continue taking back assets for leasing purpose or utilising risk hedge funds to make up for shortfall. The largest challenge to financial leasing firms is to reclaim assets they leased to other firms as current relevant legal framework remains incomplete.

Inter-ministries Public Security, Justice and the State Bank enacted inter-ministerial Circular 08/2007/TTLT-NHNN-BCA-BTP guiding ways to deal with assets offered for lease of financial leasing firms. Why it was hard to take back these assets?

That was because many firms deliberately did not give back leased assets to the real owners being financial leasing firms. In some cases, firms accepted to give back leased assets which faced serious quality deterioration. In respect to all these cases financial leasing firms may bring violators to the court. However, making violators to follow court decisions is another challenge.

So what to do to facilitate financial leasing business then?

The State Bank of Vietnam (SBV) is penning a draft decree on the financial leasing business and financial leasing firms’ operation. After the decree and then guiding decree are in place, in my view they should be added with two following contents to help facilitate financial leasing firms’ business.

First, when financial leasing firms take back their assets but their customers insist on holding these assets, the latter’s activities should be considered as illegal appropriation and violators shall bear the penal liabilities.

Second, police bodies and local governments need to cooperate with financial leasing firms in taking back the assets being leased.

Financial leasing is a sort of non-banking medium and long-term credit service that is commonplace worldwide. Why it was hard to apply that model in Vietnam?

Apart from aforesaid difficulties, financial leasing firms often starved of capital. As per existing regulations it is hard for such companies to raise fund as they mainly source capital from ‘parent’ banks.
The State Bank has enacted strict regulations on lending to subsidiaries. Hence, it now delves into special features of financial leasing business to be able to enact suitable regulations to support it.

Under Circular 21/2012/TT-NHNN credit institutions are liable to lend and borrow among each other to make up for temporary shortfall below one year maximally. How has it affected financial leasing firms’ business?

In fact, financial leasing firms have poor capital sources; meanwhile these firms render medium and long-term credit activities (at least one year). This regulation hinders ‘parent’ banks from pumping money into financial leasing firms which are their subsidiaries to perform the service.
Thereby, in this present context of economic uncertainties financial leasing firms wish to stay immune from the regulation.

Some finance firms (like PetroVietnam Finance Corporation) wanted to be turned into commercial banks. What conversions are suitable for financial leasing companies to get rid of current woes in your view?

In light of the Law on Credit Institutions finance companies can operate financial leasing services with central bank approval. Hence, it would be a smart option if financial leasing firms could be restructured into finance companies.