Directive No. 01/2007/CT-NHNN on Rectifying the Operations of Financial Leasing Companies

DIRECTIVE

On Rectifying the Operations of Financial Leasing Companies

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In recent years, financial leasing companies have made significant efforts to develop their production and business activities, expand markets, continuously improve service quality for customers... thereby creating an important channel to attract capital to meet economic development needs, especially helping small and medium-sized enterprises access medium and long-term capital with simpler conditions and methods. However, the actual operations of financial leasing companies recently have also revealed some shortcomings, with some issues potentially affecting the safety of company operations such as: inadequate customer assessment and selection, some customers lacking legal qualifications and financial capacity, leasing assets not suitable for the company's functions... still being considered for leasing by some companies; particularly, some financial leasing companies have shown signs of assisting lessees in inflating asset prices, creating loopholes for lessees to abuse capital when leasing assets, violating state laws; some companies have relaxed monitoring and supervision of lessees and leased assets, thus many cases where lessees did not use the assets but subleased them or sold them without the knowledge of financial leasing companies, causing risks in their operations.

To comply with legal regulations and strengthen the responsibility of financial leasing companies in business operations, limiting risks caused by some individuals exploiting legal loopholes to intentionally violate laws leading to asset losses, the State Bank of Vietnam requests:

1. Financial leasing companies:

a) Review and issue all internal regulations and rules regarding organizational structure and operations in accordance with the provisions of Decree No. 16/2001/NĐ-CP dated May 2, 2001 of the Government on the organization and operation of financial leasing companies and Decree No. 65/2005/NĐ-CP dated May 19, 2005 of the Government amending and supplementing certain articles of Decree No. 16/2001/NĐ-CP dated May 2, 2001 of the Government on the organization and operation of financial leasing companies, and guiding documents of the State Bank of Vietnam;

b) Issue specific guidelines for leasing business operations consistent with their conditions, characteristics, and charters in accordance with Circular No. 05/2006/TT-NHNN dated July 25, 2006 guiding certain contents of leasing operations and entrusted leasing services as stipulated in Decree No. 16/2001/NĐ-CP dated May 2, 2001 and Decree No. 65/2005/NĐ-CP dated May 19, 2005 of the Government;

c) Review the key staff (Board of Directors, Chief Accountant, Heads of Business Departments; internal audit and control units...) to arrange competent and experienced staff suitable for assigned functions and tasks;

d) By April 30, 2007, financial leasing companies must submit the documents mentioned in points a and b above to the State Bank of Vietnam (Department of Banks and Non-Bank Credit Institutions, Banking Inspection Department).

2. Companies with branches must establish an online management system to enhance internal inspection and supervision work. The Governor of the State Bank will only approve companies to open branches if they set up such a system.

3. Regarding the price of leased assets:

Financial leasing companies strictly implement the provisions at point 8.1 of Circular No. 05/2006/TT-NHNN dated July 25, 2006 of the State Bank guiding certain contents of leasing operations and entrusted leasing services as stipulated in Decree No. 16/2001/NĐ-CP dated May 2, 2001 and Decree No. 65/2005/NĐ-CP dated May 19, 2005 of the Government, paying particular attention to assessing the reasonableness of the prices of leased assets. Financial leasing companies must bear full responsibility for this assessment.

4. To have a basis for accurately evaluating the current leasing situation and to propose support measures for leasing operations in the new phase from relevant authorities or the State Bank of Vietnam, the Board of Directors of financial leasing companies must direct the Management Board to review all leasing contracts, classify customers, establish reserves, and handle leased assets with risks according to the current regulations of the Governor of the State Bank; take corrective measures to address any violations (if any). The results of self-inspection and review must be reported in writing to the State Bank of Vietnam (including reporting any difficulties and proposals regarding the organization and operation of companies) before April 30, 2007.

5. The Director of the Department of Banks and Non-Bank Credit Institutions, heads of related units of the State Bank of Vietnam, based on their functions and responsibilities, must direct a comprehensive review of all regulatory documents related to state management of leasing to propose necessary amendments and supplements; study and propose the Governor to recommend relevant ministries or submit to the Government for approval of appropriate policies to support leasing operations.

This Directive takes effect 15 days after its publication in the Official Gazette. Financial leasing companies must strictly implement this Directive. Any issues encountered during implementation should be promptly reported to the State Bank of Vietnam (Department of Banks and Non-Bank Credit Institutions) for guidance on resolution./.