Regulations on the operations of financial companies and financial leasing companies

Question: What are the new points regulating the organization and operation of financial companies and financial companies (FCs).

Answer: Decree 39 classifies FCs into two types including general FCs and specialized FCs, of which specialized FCs include (i) factoring FCs; (ii) consumer credit FCs; and (iii) financial leasing companies (FLCs).

General FCs carry out all banking operations allowed for a FC. Specialized FCs operate only in one specialized field. Decree 39 allows general FCs to be converted to specialized FCs.

A FLC is a specialized FC of which the main operation is to conduct financial leasing services provided that the loan balance shall account for at least 70% of the aggregate credit balance.

A FC can perform all banking operations as defined in Article 108 of the Credit Institutions Act 2010 (CIA) or conduct its specialized operation based on its operation license. The banking activities carried out by a FC follow the earlier provisions except for some changes.

A FC is eligible to receive monetary deposits only from an organization rather than from an individual.

A FC is allowed to borrow from the State Bank in the form of refinancing. To get the refinancing from the State Bank, in addition to meeting the general conditions for a FC to perform banking activities.

General conditions from a FC to perform banking activities specified in Article 108 of CIA include (i) the bank activities must be recorded in the Operation and Establishment License issued by the State Bank; (ii) have a team of officers qualified for professional level and capacity, being well equipped with facilities, technology, means, equipment and internal regulations prescribed by the law to carry out banking activities as allowed for a FC; and (iii) meeting the business conditions on banking operations as regulated by the State Bank. For foreign exchange-related banking operations, a FC must comply with the law on foreign exchange management.

FLCs have the right to perform financial leasing operations, as well as some banking and other activities as prescribed by CIA. Also if the previous regulations remain open, there are no regulations on capital contribution and share purchase, as the present FLC Decree 39 stipulates clearly that a FLC “must not contribute capital, purchase shares, establish subsidiaries or associated companies of every kind.”

Decree 39 also has an adjustment compared to Decree 16/2001/ND-CP prescribing FLCs and the previous Decree 79/2002/ND-CP on financial companies; not only a FLC but also even a FC, if they meet the statutory conditions, may also perform financial leasing operations.

Decree 39 takes effect on the June 25, 2014 and will replace Decree 16/2001/ND-CP on financial leasing companies and Decree 79/2002/ND-CP on financial companies./.