Financial leasing companies need to be comprehensively restructured to provide no collateral, non-bank financing for enterprises, particularly small and medium-sized enterprises unable to access bank credit, said Vietnam Financial Leasing Association general secretary Dam Duc Long.

He said that after 10 years of development, the legal framework governing financial leasing companies remained inadequate, and their operations continued to stagnate.

Last month, in a move intended to increase the competitiveness of the sector, the State Bank of Vietnam approved requests by two major finance companies to increase their charter capital. Vietinbank Financial Leasing Ltd Co will increase its charter capital from 500 billion VND (23.8 million USD) to 800 billion VND (38 million USD), while Vietcombank Financial Leasing Ltd Co will hike its charter capital from 300 billion VND (14.3 million USD) to 500 billion VND.

But most of these companies still lacked capital, skilled human resources and the capacity to adequately assess the credit worthiness of their clients, Long said.

As a consequence, the bad debts of finance companies skyrocketed to 40-50 percent in 2011, according to the National Financial Supervision Committee.

The committee's chairman, Vu Viet Ngoan, said finance companies operate in a difficult environment compared with commercial banks and have yet to find a suitable market segment. They also lack a comprehensive legal structure.

Long said the State Bank needs to create a favourable mechanism for finance companies to access capital. At the same time, the companies need to increase their management, internal control and audit capacity, as well as their systems for evaluating clients, he said.

The companies also need a better system of protecting their interests in leased assets, particularly at the end of the lease, when many clients think they have a right simply sell the asset, Long said.

Meanwhile, the Government was expected to issue a new decree on non-bank credit institutions, including finance companies./.