Finance leasing unfamiliar to Vietnamese companies

The first finance leasing company was established in Vietnam 11 years ago, and only 11 finance leasing companies have been set up in the last 11 years.

In the US, finance leasing every year provides 25-30% of the total credit funding enterprises’ purchasing and selling of equipment. The turnover from finance leasing activities is $17bil a year in the Republic of Korea, and the figure is $3bil in Thailand. The total turnover in the world that finance leasing can bring is estimated at $500bil with the growth rate of 7% per annum on average.

Meanwhile, finance leasing remains unused by Vietnamese companies. That explains why only 11 finance leasing companies have been set up in the last 11 years, since the first company of this kind was born.

A recent survey showed that the average capital of a finance leasing company is VND150bil ($9.37mil), very small if compared to the chartered capital of commercial banks, at over VND1tril ($62.5mil). A lot of companies among the said 11 companies have been operating ineffectively. It is because Vietnamese companies do not access loans through finance leasing.

In fact, not many Vietnamese companies know much about finance leasing due to bad advertising. A recent survey conducted of 1,000 enterprises showed that 70% of them knew very little about finance leasing. Meanwhile, nearly 20% of the polled enterprises said they knew nothing about finance leasing. Some of them even thought that it was a kind of funding of purchasing by installments. In general, enterprises cannot see any benefit in using finance leasing services.

In fact, the finance leasing fee remains high, thus not attracting enterprises. In general, clients would have to pay high to get assets through leasing services, while the cost would be lower if they borrow money from banks to buy the assets. The finance leasing interests rates prove to be higher than the bank loans’ interest rates as lessees have to pay additional expenses on installation, operation and insurance.

Another reason that explains why finance leasing is not favoured in Vietnam is the lack of legal documents regulating the finance leasing market. Experts have pointed out that the current regulations which say that domestic companies must have VND50bil ($3.12mil) and foreign companies must have $5mil to be allowed to operate in Vietnam prove to be unsuitable.

Despite the difficulties, experts still assert that Vietnam should pay appropriate attention to develop the finance leasing market. They said that the finance leasing would be a good solution for small enterprises or newly born ones which lack capital but need heavy investment in their workshops and technologies. In Vietnam, small- and medium-size enterprises account for 95% of total enterprises. 50% of enterprises are dissolved or need restructuring after six years of operation.

Source: VNE