Vietnam needs enabling environment to promote financial leasing

It is critical to create an enabling environment to promote the development of financial leasing in Vietnam as a channel to supply capital to the economy, according to General Secretary of the Vietnam Financial Leasing Association (VILEA) Pham Xuan Hoe.

Vietnam needs enabling environment to promote financial leasing -0
Financial leasing began to appear in Việt Nam in 1998 and has since become diverse in terms of leasing assets such as machinery, equipment and automobiles. — VNA/VNS Photo Minh Hưng

Hoe said that financial leasing has high potential in Vietnam’s dynamic economy with more than 800,000 enterprises and more than 5 million business households.

He cited statistics that the ratio to GDP remained modest at 0.4%, compared to 22% in the US and 18% in China.

More than 90% of small and medium sized enterprises in developed economies like the US, Japan and the Republic of Korea used financial leasing for production lines and equipment. The global outstanding loans are estimated at more than 1.4 trillion USD.

Although global uncertainties cloud the economic outlook, there are opportunities for financial leasing from stable macroeconomies, hastened public investment disbursement, green economy, circular economy and emerging industries, which pushed up demand for capital leasing, Hoe said.

As Vietnam remains an attractive destination for foreign direct investment (FDI) companies accustomed to financial leasing services, there is significant room for growth.

The amended Law on Credit Institutions, coming into force from the beginning of July, will provide a legal framework for the development of financial leasing services, Hoe said, adding that outstanding loans of financial leasing are projected to expand at 20% to around 45 trillion VND by the end of 2024.

Financial leasing is considered an optimal method of helping businesses access capital without mortgaging assets. However, enterprises in Vietnam are not familiar with financial leasing, Hoe said.

To promote the development of financial leasing, Hoe said it is necessary to improve the legal framework with detailed regulations about who can access financial leasing services and safety ratio for risk management.

A decree guiding the implementation of financial leasing services in line with the amended Law on Credit Institutions must be completed and issued early.

Financial leasing began to appear in Vietnam in 1998 and has since become diverse in terms of leasing assets.

A financial leasing is a type of commercial lease in which a finance company is the legal owner of an asset, and the user rents the asset.

Six VILEA member companies currently have total assets worth more than 41 trillion VND, a rise of 10.65% compared to the end of 2022. The total raised capital reached 19.8 trillion VND, an increase of 25.76% – the rate which doubled the credit growth rate of the banking system.

The total outstanding loans of member financial leasing companies were estimated at 37.2 trillion VND, up by 13.75% against the end of 2022, with more than 8,400 contracts.

Leasing services are diverse with the most popular assets being automobiles, construction and mining machineries, medical devices and production lines.

Specially, the ratio of bad debt is controlled at below 1%.

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