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Starting from July 1, 2024, the Law on Credit Institution 2024 will come into effect, replacing the Law on Credit Institutions 2010 (amended and supplemented in 2017). The Law on Credit Institution 2024 expands the scope of activities and improves the legal framework for non-bank credit institutions in general and financial leasing companies in particular. The new law is expected to create opportunities for further effectiveness and bring financial leasing services closer to businesses, providing better long-term credit resources for enterprises. However, the new law also continues to have strict regulations on the operations of non-bank credit institutions/financial leasing companies to ensure a safe and transparent credit environment.

Source of image: Bao Dau Tu

Expanding the “development space” for financial leasing companies

Recognizing the important role of non-bank credit institutions in general and financial leasing companies in particular in comprehensive financial development strategies, the law has undergone amendments to create conditions for expanding the operations of non-bank credit institutions/financial leasing companies.

Firstly, the Law on Credit Institution 2024 allows for the expansion of the subjects and forms of credit provision. In terms of the activities of financial leasing companies, the Law on Credit Institutions 2024 expands regulations allowing financial leasing companies to carry out lending activities in general, without limiting borrowers (Article 120, Clause 3, Point b, and Article 115, Clause 3 of the Law on Credit Institution 2024). Previously, financial leasing companies were only allowed to lend additional working capital to lessees.

Secondly, it allows financial leasing companies to acquire debt management and asset exploitation affiliates. Specifically, Article 123 of the Law on Credit Institutions 2024, for the first time, permits financial leasing companies (within the specialized financial company group) to establish and acquire subsidiaries and affiliated companies operating in the field of debt management and asset exploitation.

Thirdly, it allows financial leasing companies to provide consultancy services on banking operations and other business activities specified in the license. Article 124 of the Law on Credit Institution 2024 stipulates that financial leasing companies, in particular, and specialized financial companies, in general, are permitted to advise on banking activities and other business activities specified in the license.

In general, the new law contributes to the improvement of the legal framework for the operations of financial leasing companies (part of the non-bank credit institutions). These changes are expected to create opportunities for expansion, thereby promoting the comprehensive development of the financial market, reducing dependence on the commercial banking system.

Continuing to closely regulate the operations of non-bank financial institutions/financial leasing companies

While expanding the scope of operations for non-bank financial institutions/financial leasing companies, the Law on Credit Institutions 2024 also includes stricter regulations for supervision and management of the activities of specialized financial companies/financial leasing companies in order to ensure safety in risk management related to credit provision by financial leasing companies and to safeguard the stability of the non-bank credit institution system. 

Specifically, the law also includes additional stringent provisions regarding the governance system, organization, rights, and obligations of managers and executives of non-bank credit institutions/financial leasing companies, aiming to enhance the quality of governance, management, and conflict of interest prevention.

For instance, Article 136, Clause 2 of the Law on Credit Institution 2024 stipulates stricter requirement of capital adequacy for the total outstanding credit balance.

It can be seen that the Law on Credit Institutions 2024 has introduced many new provisions that address current difficulties and challenges in the operations of non-bank credit institutions in general and financial leasing companies in particular. It also opens up opportunities for accessing credit and financial services for businesses, especially small and medium-sized enterprises, reducing dependence on commercial bank loans.