Conditions for operation of financial leasing in Vietnam

1. What is financial leasing?

According to Clause 7 Article 3 of Decree 39/2014/ND-CP, financial leasing means medium-term and long-term credit activities based on financial leasing contracts between the lessors and the lessees.

In there:

- The lessors commit to buying assets for financial leasing at the request of the lessees and hold the ownership over financially leased assets during the lease term.

Specifically, financial leasing assets are machinery, equipment or other assets in accordance with the State Bank's regulations and are guided specifically on types of leased assets in each period. (Clause 7 Article 3 of Decree 39/2014/ND-CP)

- The lessees use the leased assets and pay rents therefor during the lease term under the financial leasing contracts.

2. Operation of financial leasing companies in Vietnam

Financial leasing company is a specialized financial company whose main activity is financial leasing according to the provisions of Decree 39/2014/ND-CP. The loan balance for finance leasing must account for at least 70% of the total credit balance. (Clause 7, Article 3, Decree 39/2014/ND-CP)

Specifically, the financial leasing company's activities include:

- Financial leasing companies are allowed to carry out the activities specified in Articles 112 to 116 of the Law on Credit Institutions 2010 (amended 2017) and the provisions of Decree 39/2014/ND-CP:

+ Banking activities of finance leasing companies

++ Receiving institutional deposits.

++ Issuing certificates of deposit, promissory notes, bills, and bonds to raise organization capital.

+ Borrowing capital from credit institutions, domestic and foreign financial institutions in accordance with the law; refinancing loans from the State Bank in accordance with the provisions of the Law on the State Bank of Vietnam 2010.

++ Financial leasing.

++ Loans to supplement working capital for finance lessees.

++ Operating lease, provided that the total value of the operating lease assets does not exceed 30% of the financial leasing company's total assets.

++ Performing other forms of credit extension when approved by the State Bank.

+ Financial leasing activities

Financial leasing is the granting of medium- and long-term credit on the basis of a finance lease contract and must meet one of the following conditions:

++ At the end of the lease term under the contract, the lessee is entitled to transfer ownership of the leased asset or continue to lease it as agreed by the two parties;

++ At the end of the lease term under the contract, the lessee has the right to preemptively purchase the leased asset at a nominal price lower than the actual value of the leased asset at the time of acquisition;

++ The lease term of an asset must be at least 60% of the time required to depreciate the leased asset;

++ The total rent for an asset specified in the finance lease contract must be at least equal to the value of that asset at the time of signing the contract.

+ Open an account with a financial leasing company.

++ The financial leasing company that accepts deposits must open a deposit account at the State Bank and maintain in this deposit account an average balance not lower than the required reserve level.

++ Financial leasing companies are allowed to open payment accounts at commercial banks or foreign bank branches.

+ Contributing capital, buying shares of financial leasing companies.

Financial leasing companies are not allowed to contribute capital, buy shares, establish subsidiaries or affiliates in any form.

+ Other activities of the finance leasing company

++ Receive capital entrusted by the government, organizations, and individuals to carry out financial leasing activities. The receipt of entrusted capital from individuals shall comply with regulations of the State Bank of Vietnam.

++ Participating in the treasury bill auction organized by the State Bank of Vietnam.

++ Buying and selling government bonds.

++ Trading, providing foreign exchange services and entrusting financial leasing according to regulations of the State Bank of Vietnam.

++ Acting as an insurance business agent.

++ Providing consulting services in the field of banking, finance, investment for financial lessees.

- Purchase and sub-lease.

- Sale of payable amounts from financial leasing contracts to organizations and individuals under the State Bank of Vietnam’s regulations.

(Article 16 of Decree 39/2014/ND-CP)

3. Financial leasing operating conditions of finance companies in Vietnam

According to Clause 1, Article 13 of Decree 39/2014/ND-CP, a finance company may conduct the above financial leasing activities when fully satisfying the following conditions:

- Having a team of qualified staff, professional capacity, material foundations, technology, means, equipment and internal regulations as prescribed by law to carry out banking activities as stated in the License.

- Fully satisfying the professional conditions for banking activities prescribed by the State Bank.

For finance companies established and operating before June 25, 2014 that may add financial leasing activities, in addition to fully meeting the above conditions, the following factors must also be added:

- The conditions specified at Points c, d, dd, Clause 2, Article 11 of Decree 39/2014/ND-CP:

+ Complying with regulations on prudential ratios in banking operations, debt classification and provisioning for risks continuously in all quarters of the year preceding the year in which additional operations are requested;

+ The bad debt ratio is below the level prescribed by the State Bank;

+ Not be sanctioned for administrative violations in the monetary and banking sectors for a period of 01 consecutive year from the time of applying for additional activities.

- Having profitable business activities continuously for at least 02 consecutive years preceding the year of request for additional operations.

Thanh Rin

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