Solutions for improving the financial leasing asset management in Vinashin finance leasing company

Realizing the problems that exist with the financial leasing companies are generally the asset management was not good, and the financial leasing company almost has completed the process

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

LÊ QUANG THIỆP

SOLUTIONS FOR IMPOVING THE FINANCIAL LEASING ASSET MANAGEMENT

IN VINASHIN FINANCE LEASING COMPANY

MỘT SỐ BIỆN PHÁP HOÀN THIỆN CÔNG TÁC QUẢN LÝ TÀI SẢN

CHO THUÊ TÀI CHÍNH TẠI CÔNG TY TNHH MTV

CHO THUÊ TÀI CHÍNH CÔNG NGHIỆP TÀU THỦY

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

Hà Nội - 2017

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

LÊ QUANG THIỆP

SOLUTIONS FOR IMPOVING THE FINANCIAL LEASING ASSET MANAGEMENT

IN VINASHIN FINANCE LEASING COMPANY

MỘT SỐ BIỆN PHÁP HOÀN THIỆN CÔNG TÁC QUẢN LÝ TÀI SẢN

CHO THUÊ TÀI CHÍNH TẠI CÔNG TY TNHH MTV

CHO THUÊ TÀI CHÍNH CÔNG NGHIỆP TÀU THỦY

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS PHẠM THỊ THANH HÒA

Hà Nội - 2017

DECLARATION

The author confirms that the research outcome in the thesis is the result of author‟s independent work during study and research period and it is not yet published in other‟s research and article

The other‟s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business, and the laws for above-mentioned declaration

Hanoi, May 19th, 2017

ACKNOWLEDGEMENT

I would like to send my sincere thanks to Dr Pham Thi Thanh Hoa - Lecturer of the Institute of Finance and banking - Finance academy, who devoted her guidance to help

me complete this dissertation

I would also like to thank:

- Teachers and lecturers in Master of Business and Administration – Vietnam national University, Hanoi taught and imparted knowledge to me during the course of higher education

- Friends and colleagues in the work unit have encouraged me to study and research

Hanoi, May 19th, 2017

Student

Le Quang Thiep

TABLE OF CONTENTS

ABBREVIATION 6

INTRODUCTION 9

1 Rationale 9

2 Literature review 10

3 Aim of research 11

4 Object of research 12

5 Scope of research 12

6 Research methodology 12

7 Thesis structure 13

LIST OF FIGURES 7

LIST OF TABLES 8

CHAPTER I: THE BASIC THEORIES FOR THE MANAGEMENT OF FINANCIAL LEASING ASSETS 14

1.1 The basic issues about financial leasing 14

1.1.1 The concept of financial leasing 14

1.1.2 Characteristics of financial leasing activities 15

1.1.3 Classification of financial leasing forms 16

1.1.4 Comparison of financial leasing with operating leasing (net leasing) 19

1.1.5 Comparison between financial leasing with medium and long-term loans 21 1.1.6 The role and significance of financial leasing 22

1.2 The theory of management of financial leasing asset 24

1.2.1 The concept of management of asset in the financial leasing 24

1.2.2 Content of management of asset in the financial leasing 24

1.2.3 The indicators for managing the financial leasing asset 26

1.2.4 Comparing the management of financial leasing assets with the management of pledged, mortgaged assets in other credit institutions 28

1.3 Factors affecting the management of financial leasing assets 30

1.3.1 Subjective factors 30

1.3.2 Objective factors 30

CHAPTER II: THE SITUATION OF MANAGEMENT OF THE FINANCIAL LEASING ASSET IN VINASHIN FINANCIAL LEASING COMPANY 31

2.1 Overview of Vinashin Financial leasing Company 31

2.1.1 The foundation and development of the Company 31

2.1.2 Characteristics, main activities of the Company 32

2.1.3 Characteristics of the management system of the Company 33

2.1.4 Overall performance of the Company 35

2.1.5 Position of the Company in the financial leasing market 39

2.2 Situation of financial leasing operatens in VFL company 42

2.2.1 Situation of financial leasing operation and credit of risk 42

2.2.2 Situation of financial leasing operatens in VFL company 47

2.3 Evaluate the management of financial leasing assets 55

2.3.1 Advantages 55

2.3.2 Limitations and causes 56_Toc487100950 Chapter III Solutions for improving the management of leasing asset management in Vinashin finance leasing company 60

3.1 Development orientation of Vinashin finance leasing company 60

3.1.1 The general context of socio-economic 60

3.1.2 Orientation of the company in the future 60

3.2 Solutions to improve the management of financial leasing assets in Vinashin finance leasing company 62

3.2.1 Administration solutions 62

3.2.2 Solutions to build the asset management system for financial leasing 63

3.2.3 Human resource solutions 69

3.3 Recommendations and proposals 70

3.3.1 Recommendations to the State Bank 70

3.3.2 Recommendations to the Ministry of Finance 71

3.3.3 Recommendations to the Ministry of Police, Registry agency 71

CONCLUSION 73

REFERENCES 74

ABBREVIATION

- Ministry of Finance: MOF

- Vietnam commercial bank of industry and development: BIDV

- Vietnam commercial bank for Foreign: Vietcombank

- Vietnam commercial bank for industry and trade: Vietinbank

- Vinashin finance leasing: VFL

- Vinashin finance company: VFC

- Vietnam State bank: SBV

LIST OF FIGURES

Figure 1.1: Diagram of a financial leasing of three parties………17

Figure 1.2: Diagram of financial leasing of two members……….19

Figure 2.1: The organizational structure of VFL company………34

Figure 2.2: Chart of VFL loan and membership loans in Financial Leasing Association……… 41

Figure 2.3: Loans and finance lease sales in VFL company (2008-2015)……… 43

Figure 2.4: Structure of customer loans in the VFL company (2013 - 2015)……….44

Figure 2.5: Percentage value of assets classified by categories……… 47

Figure 2.6: Number of assets in and outside shipbuilding……… 48

Figure 2.7: Percentage and value of asset in inside and outside shipbuilding industry… 48

Figure 2.8: Distribution of assets according to geographical area……… 48

LIST OF TABLES

Table 1.1: Comparison between Operating and Financial leasing………20

Table 1.2: Table of comparing the management of collateral, mortgage with financial leasing assets……… 29

Table 2.1: Structure of deposits of VFL company (2009-2015)………36

Table 2.2: Results of business activities in VFL company (2008-2015)……… 38

Table 2.3: List of financial leasing companies in Vietnam………39

Table 2.4: List of companies of Vietnam Financial Leasing Association……… 40

Table 2.5: Market share of financial leasing activities of VFL company (2008-2012)……… 41

Table 2.6: Results of financial leasing activities in VFL company (2008 - 2015)……….42

Table 2.7: Results debt classification at the time of 31/12/2013 -31/12/2015………44

Table 2.8: Structure of loans in VFL company (2013-2015)……… 44

Table 2.9: Structure of loans in the leasing Association at 31/12/2015……… 45

Table 2.10: Structure of financial leasing loans by economic sector (2012-2015)……….46

Table 2.11 Overdue loans and the rate of overdue loans in VFL company (from 2008 to 2015)……… 52

Table 2.12 Target of recovering the debt………53

Table 2.13: The rate of bad debt in VFL company (2013-2015)………54 Table 2.14: The rate of bad debt of members in the Vietnam leasing association in 2014.54 Table 2.15: The rate of bad debt of members in the Vietnam leasing association in 2015.55

INTRODUCTION

1 Rationale

Financial leasing is a form of medium and long-term credit has many advantages,

in line with the small and medium-sized enterprises, enabling them to equip the fixed assets where the ability to raise capital in the restricted long-term financing market, or the medium and long term loans in troubled banks, especially property mortgage procedures Not only small businesses, large corporatens or government agencies in many countries also use this service as a tool to reduce costs and investment real estate

Financial leasing is a new business field, have only been in Vietnam about 15 years and only be used for investment in property Realizing the problems that exist with the financial leasing companies are generally the asset management was not good, and the financial leasing company almost has completed the process about the asset management also have many shortcomings, resulting in credit quality is not good, bad debt rate is relatively high

According to the data of the Association of Vietnam financial leasing, loans of 08 financial leasing companies are active, not including 04 abroad financial leasing companies

do not join the Association, by the end of 2013 was more than 17.424 billion VND and more than 15.540 billion VND in 31/12/2014 The total revenues of these enterprises in

2013 reached more than 3452 billion VND and total spending than 5,066 billion VND; in

2014 revenues reached 2,159 billion and total spending is 3779 billion VND Thus, 8 enterprises in 2013 was a loss before tax of more than 1,614 billion VND and in 2014, nearly 1,620 billion VND loss

The growth rate of financial leasing in Vietnam increased sharply, from finance leasing debt balance in 2009 is more than 13 969 billion was increased to more than 19 719 billion in 2012, up more than 41% after two years Just as credit lending by banks, leasing loans always come with increasing risk as high risk Therefore, by 2014, the outstanding balance of finance lease fell to 17 424 billion, down 11.64% compare with in 2012 In

2014, the debt was 15 540 billion, down 10.81% compared with in 2013

The problem is how to manage and control the leasing asset in the current financial leasing, and with the managers‟ views of the financial leasing assets, what should have the solutions to improve the quality of investment performance as well as reduce the lost? As a staff works at Vinashin finance leasing company, a financial leasing company established over 7 years ago, found itself on the issue of inadequate asset management: financial leasing activities, a business sector contributes a large proportion of the company's sales

that the capability collected the loans on time is high, relatively low credit quality Therefore, the asset management in financial leasing activities is a urgency matter in improving credit quality Based on outstanding issues in the company, I choose the topic for my thesis was "Solutions for improving the financial leasing asset management in Vinashin finance leasing company "

2 Literature review

Financial leasing is considered as the highest stage of development of credit and conductive capital channel is effective for businesses to invest in capital goods, especially suitable for small and medium enterprises In the world today, the scale of the financial leasing activity is growing rapidly and has grown enormously over the years, especially in developing countries

In Vietnam, leasing activity started to appear since 1996 and until now has 13 companies licensed and operating Of which, the financial leasing companies under the Bank include financial leasing companies Bank of Agriculture and Rural Development, Vietinbank, Vietcombank, Bank for Investment and Development of Vietnam The financial leasing companies with 100% foreign capital may include ANZ-VTRAC financial leasing company; Kexim leasing company and Chailease International Financial leasing company There are also companies such as other forms of financial leasing company International Vietnam (joint venture); Asia Commercial Bank financial leasing company; Vinashin financial leasing company At the end of 2014, total loans of financial leasing companies are more than 15.540 billion VND Although leasing activity has appeared in Vietnam for nearly 20 years but still do not have the legal documents as well

as comprehensive policies to encourage this type effectively However, Vietnam enterprises, especially small and medium enterprises have known this type of service and began using leasing as a financial tool to serve the needs of their business development

Currently, there are some topic, essay and reports related to research the financial leasing For example, the topic about “The current situation of leasing companies” by the group of students launched the review of the operation and status of the company at the time in August 2013 Besides, the author Nguyen Phuong Huyen also research about “the solution for improving the financial leasing activities” and this research show that the general status of the leasing activities in Vietnam and the solutions for improving However, this topic research in the big scope and not show the relevant problems to the leasing asset management Another author Le Thi Khanh Hoa give the research with topic

“Improve the leasing fixed asset management in the Hung Yen electricity company” This

topic show the asset management in the narrow and detailed scope in the electricity industry The result of this research contribute to improve the methodology management and efficient use of fixed assets in electricity distribution businesses Because the research apply to the special industry, not cover the whole asset for the leasing companies The solutions for this topic also use for the electricity distribution businesses, not suitable for the leasing company

Moreover, the business has benefited from the competition between commercial banks leads to loosening credit approval mechanism and reducing marginal profits of some banks in order to attract customers and increase the loan balance In the future when the Vietnam commercial banks under pressure to comply with the regulations of bank in accordance with international rules will have to be more cautious in the decisions to grant its credit Therefore, access to traditional loans from the commercial banks will have to comply with the regulations stricter evaluation

Management of asset in the financial leasing activity is the implementation of the monitoring and inspection of the asset and equipment during the implementation of the contract: since the handover of assets until finishing the contract in order to classify and evaluate the assets, warned about the use of assets to ensure the quality of credit The biggest difference between the financial leasing assets and the pledged and mortgaged assets is the financial leasing assets excluding real estate (assets in the land, the rights of using land) and input materials Thus in the management of assets, there are also many differences With the pledged and mortgaged assets, through the process of revaluation, if the value of revaluation is lower than the initial valuation, to ensure the loan the mortgager must pledge the additional assets to ensure the total value of mortgaged assets equals the value of the initial valuation in order to provide credit This makes a huge difference in the management of financial leasing assets

Thus there are many researches about the financial leasing activities, but without any research works on asset management in financial leasing companies and especially in Vinashin finance leasing company

3 Aim of research

3.1 General aim:

Research about the status of managing the leasing asset in Vinashin finance leasing company and propose the solutions in order to improve the management of assets in financial leasing companies

3.2 Overall objectives:

- Buiding the general issues about financial leasing and financial leasing asset management in financial leasing activities

- Analyzing the situation of the asset management in Vinashin finance leasing company

- Proposing some solutions to improve the management of financial leasing assets in Vinashin finance leasing company:

o Internal solutions fit to the operatenal model of the company

o Recommend and proposals about the current law

4 Object of research

The object of the thesis: the management of financial leasing assets in Vinashin

finance leasing company

Thesis will use the research methodology are expected:

- Comparison methodology: is used to compare the assessment of changes in financial leasing activities, asset management of the company over the years

- Statistical analysis methodology: described, analyzed statistic inference This method is used for statistic the asset management of the company over the years

- Synthetic analysis methodology: is used to analyze the situation of leasing asset management , the risks incurred, indicating the existence of asset management, the cause

The data collection is mainly based approach, the use of data in the financial statements of the Company, the aggregate data from reference sources on the Web, including:

- Secondary data:

o Legal documents on accounting operations of Vietnam financial leasing from 1995 to present

o Data of Vinashin Financial leasing Company

o Data of financial leasing association

o Data of Internet source

o Textbooks or other scientific publications related to the thesis, Banking syllabus of economics university, Syllabus of Commercial banking,

- Primary data: was collected through surveys and interview at 07 financial leasing companies of Commercial Bank For the thesis research, the author used the combination of various data collection methods such as practical observation method, interview method

o Practical observation method: During the thesis research, the researcher used the observation method directly to record the contents related to the thesis such as leasing process, the way for organizing the management apparatus, database of managing asset, bookkeeping system

o Interview method: the author uses different interviewing techniques depending on the subject, interviewed directly, interviewed indirectly via email or telephone, following these steps:

 Step 1: Set up interview objectives

 Step 2: Determine the scope of the interview

 Step 3: Identify interviewees

 Step 4: Build a sample interview questionnaire

 Step 5: Conduct the interview

CHAPTER I: THE BASIC THEORIES FOR THE MANAGEMENT OF

FINANCIAL LEASING ASSETS 1.1 The basic issues about financial leasing

1.1.1 The concept of financial leasing

Financial leasing is considered as the highest stage of development of credit and conductive capital channel is effective for businesses to invest in capital goods, especially suitable for small and medium enterprises In the world today, the scale of the financial leasing activity is growing rapidly and has grown enormously over the years, especially in developing countries

In theory and practice, there are many views on the financial leasing Depending on the angle of the study, or as prescribed by the laws of each country, there are several different concepts

The concept according to International Accounting Standards (IAS 17):

"Financial leasing is transferred substantially all the risks and benefits related to asset „s ownership The following ownership of may be transferred or not"

The concept according to the Vietnam Accounting Standards (Standard No 06)

issued under Decision No.165/2002/QD-BTC dated 31/12/2002 on the issuance and publication of six Vietnam accounting standards (2nd): "financial leasing is the leasing of assets which the lessor has transferred substantially all the risks and rewards associated with ownership of the property to the lessee Property of ownership can be transferred at the end of the lease term"

The concept of financial leasing in Vietnam according to Decree

No.16/2011/ND-CP dated 05/02/2001 of the Government on the organization and operaten of financial leasing companies: "Financial leasing is operaten of medium and long-term credit through the leasing of machinery, equipment, vehicles and other movable assets on the basis of the leasing contract between the lessor and the lessee The lessor is committed to the purchase

of machinery, equipment, vehicles and other movable assets at the request of the lessee and retains ownership over the leased assets The lessee uses the leased asset and lease payments during the lease term has been mutually agreed At the end of the lease term, the lessee has the option to purchase the leased assets or continue the lease under the terms agreed in the contract of financial leasing Total leased expense for a property is specified

in the financial leasing contract, at least equal to the value of such asset at the time of signing the contract"

The introduction of Decree No.16/2011/ND-CP dated 02/05/2001 has officially marked an important step in the development of the financial leasing in Vietnam From now on, the financial leasing is official considered an active medium and long term credit, and become a new credit operatens by the financial leasing companies done

According to Decree 65/2005/ND-CP dated 19/5/2005 providing for the amendment of some articles of Decree No.16/2001/ND-CP also provides definitions of financial leasing transactions:

”A financial leasing transaction must satisfy one of the following conditions:

- At the end of the leasing term under the contract, the lessee may transfer ownership of the leased property or be continually leased through the agreement of both parties

- At the end of the leasing term under the contract, the lessee has the priority right to purchase the assets at nominal prices lower than the actual value of the leased asset at the time of acquisition

- The lease term of each asset must be at least 60% of the time needed for depreciation of leased assets

- Total leased expense for a property is specified in the financial lease contract, at least equal to the value of such assets at the time of signing the contract.”

Thus, on the standpoint of the finance leasing company/lessor, we can see the biggest differences between the views of financial leasing in Vietnam and around the world about the object that is leased, does not apply to lease the property, but only for financial loans in machinery, equipment, vehicles and other movable property

1.1.2 Characteristics of financial leasing activities

From the above financial leasing concept, it is possible to give some basic features

of leasing activities as follows:

Financial leasing activities must meet certain conditions According to the Commission of International Standard Accounting issued four conditions that any lease transactions satisfy at least one of four conditions which are to be treated as financial leasing transactions From the concept of financial leasing can provide some basic characteristics of financial leasing activities as follows:

- Ownership of the leased asset are transferred to the lessee at the end of the contract

- Present value of total minimum lease payments paid by the lessor is not less than the market value of the leased asset at the time of signing the contract

- Duraten of the leasing contract accounts for most of the time of the useful leased asset

- The leasing contract is stipulated an option to purchase the leased asset at the end of a contract with a value lower than the value at the end of leasing contract

- The financial leasing contracts are largely to invest in new leased assets The right choice of the leased property belongs to the lessee, the lessor shall be obliged to buy the right kind of property which the lessee has an agreement or commitment with the supplier of assets

- Financial leasing contracts are irrevocably contracts sothat the lessee is not entitled to terminate the contract ahead of time, unless the lessor has error or lessee requests for pre-term termination of the contract and the lease approval Thus, the nature of the financial leasing is a form of medium and long-term credit through the leasing of machinery, equipment, vehicles and other movable assets based on the leasing contract between the lessor and the lessee Owners of leasing properties would transfer ownership to the lessee when the lessee completed the leasing payment Financial leasing is different from alone leasing property form or forms of installment sales on the form of ownership, as well as the nature of the relationship between the parties In financial leasing, the lessee may only use the property and not have ownership and disposition During leasing time, the lessee is entitled to the accounting balance sheet in its accounting of fixed financial leasing asset items but may not use such assets as security for the mortgage When using the leased property, the lessee must pay a certain amount of periodic (monthly, quarterly) was specified in the contract

1.1.3 Classification of financial leasing forms

Based on the participants in a financial leasing transactions can be divided into two main categories: financial leasing of three members and financial leasing of two parties

a Financial leasing of three members - net financial leasing

According to this method, the process for leasing will have the participation of three membersis the lessor, the lessee and the supplier The lessee will choose, agree with suppliers of assets The lessor shall only purchase the property at the request of the lessee were dealed with in the financial leasing contract

Figure 1.1: Diagram of a financial leasing of three parties

The leasing process includes steps as follows:

(1) The lessee actively choose machinery and agreements with suppliers

(2) Lessee - lessor signed financial lease contract

(3) The lessor - supplier sign up the purchased contract of machinery and equipment is assets under the agreement between the lessee and supplier

(4) Supplier delivery to the lessee, installs, commisses, acceptance of the transferred assets (5) The lessor pays for the purchase of leased assets to the supplier

(6) The lessor finance lease pays to the lessee under the leasing contract

This is the financial leasing method that is used the most popular in the current world because of the following advantages:

- The lessee selects the supplier, has directly agreements, negotiates with vendors, chooses the best suitable product with their needs

- The lessor shall not purchase products in advance, just sign the purchased asset agreement follow by the request of the lessees and suppliers Suppliers are responsible for transferring the property to the lessee Thus, reducing the warehousing costs, wear and tear during the lessor reserves, also not reserve inventory therefore revolving loan should help faster

- The lessor may avoid the risk that if the lessee refuses to receive the assets because of technical errors, because the lessee directly receives the product from the vendor and has made acceptance of the transferred assets

- The lessor does not need to be concerned about the operatenal status of the property because the installation, maintenance and repair of the product are the responsibility of the vendor and the lessee

b Purchasing and subleasing

Suppliers of machine and equipment

Purchasing and subleasing is a special form of financial leasing of three parties, including the lessee is also asset suppliers

In the process of production and business, many businesses using the unbalanced capital (using short-term capital for investing in fixed assets), lack of short-term working capital, thereby adversely affecting the financial situation of company Therefore, to overcome this situation, business can use the form of purchasing and subleasing, which is now selling the property will perform as machinery for the lessor to obtain a capital, improve the shortage balance of capital, and subleasing those assets in order to continually use, maintain the current capacity

Process of purchasing and subleasing normally takes place in 4 steps:

(1) The lessor and lessee sign the financial leasing contract, which stipulates that the lessee

is the property vendor

(2) The lessor and the lessee sign the purchased asset of agreement, in which the lessee is the property seller, the lessor is the property buyer

(3) The buyer (the lessor) pay for the property to the seller (lessee)

(4) The lessee shall recognize the debt and pay for the lessor under the leasing payment of schedule that agreed upon both parties

c Cooperaten leasing

Cooperaten leasing is a special case of leasing tripartite, many lessors support a lessee The lessors will appoint a lessor stands out as the clue lessor This will represent the cooperaten lessors to make the transaction with the lessee, while enjoying clue charge The cooperaten lessors will contribute the capital, share the benefits and risks according to the rate of contributions

Cooperaten leasing is usually applied with the large funds, beyond the finance or exceed the allowed quota by a financial leasing company by the law of State Bank (in Vietnam, fiancial leasing companies are not allowed to make loans to a customer exceed 25% of the equity capital of the company (according to the credit institutions) and with a relevant group of customers is 50 % (according to Circular 13/2010/TT-NHNN on prudential rates of credit institutions))

Process of a financial leasing cooperaten transactions includes 7 steps:

(1) The lessors participate in cooperaten leasing sign the syndicative contracts, including agreement on the level of equity, entitlements and the risks incurred in the rate of contributions, appointed clue lessor,

(2) The clue lessor and the lessee sign the financial leasing contract

(3) The clue lessor signs the purchased contract with the suppliers

(4) The cooperaten lessors transfers the capital for the clue lessor through contract signed (5) The clue lessor pay for the supplier through the contract signed

(6) The lessee shall recognize the debt and pay for the clue lessor with the scheduled payment agreed

(7) The clue lessor pay the leasing money for the cooperraten lessors

d Financial leasing of two members

In this form with the participation of the two sides is the lessee and lessor Using financial leasing of two members, the lessor facilitates the lessee does not need to buy the property that may still have to use for business production

Figure 1.2: Diagram of financial leasing of two members

From the above diagram, in the financial leasing of two members, before the leasing transaction, the asset was owned by the lessor Lessors can produce, build or buy that asset before Financial institutions rarely apply this financing method beacause it can only be used for those leasing assets which are retrieved, can not be brought This method

is mainly used by manufacturing machinery companies and trading real estate companies

1.1.4 Comparison of financial leasing with operating leasing (net leasing)

Financial leasing and operating leasing are forms of leasing asset on the basis of the leasing contract between the two entities - The owner of the asset and the use of asset In which, the property „s owner - lessor transfer the asset to the lessee to use in a given time and the user is required to pay to the property owner However, these types still have many differences:

- Operating lease: a form of property leasing, thereby the lessee uses the leasing assets of the lessor in a certain time and will return the asset to the lessor at the end of the leasing time The lessor retains ownership of the leasing assets and recieves the payment from the leasing contract

- Financial leasing: is the operaten of medium and long-term credit through the leasing of machinery, equipment, vehicles and other movable assets on the

1 The lessor and

the lessee make a

the leasing

contract

2 The lessor assigns the right

to use and the property to the lessee

3 The lessee pays money to the lessor

basis of the leasing contract between the lessor and the lessee The lessor is committed to the purchase of machinery, equipment, vehicles and other movable assets by the request of the lessee and the lessor retains the ownership over the leased assets The lessee uses the leasing asset and pay the term has been mutually agreed

Table 1.1: Comparison between Operating and Financial leasing

Value of

leasing money

Total leasing money is specified in the financial leasing contract, must be at least equivalent to the value of such assets at the time of signing the contract

Value of leasing money only represents a fraction of the value

of the leasing asset

Trasferring the

ownership

Ending the period of leasing, the lessee has the priority right to purchase the leasing assets at nominal prices lower than the actual value of the leasing asset at the time

of acquisition

Not specified the purchase of asset between the lessor and the lessee

The right

choice of asset

The lessee is entitled to select suppliers and property assets Available asset of the lessor Responsibility

for risk

The lessee must face the risk even through

no fault of own cause

The lessor shall bear, except for the fault of the lessee

1.1.5 Comparison between financial leasing with medium and long-term loans

To clarify the characteristics of financial leasing, it can make comparisons of financial leasing activities with medium/long-term business loans and with in the form of operating leasing

In naturally, it can view that the financial leasing is a form of medium and long term credit because it provides the basic characteristics of this type of credit:

- Lender (the lessor) transfers a term for the borrower (lessee) a value based on the trust

- Reimbursing normal value should be greater than the value at the time of the loan (lease time) because the borrower (lessee) to pay principal plus interest section

- However, the financial leasing are still significant differences compared with medium and long-term credit from banks

- With medium and long term credit, the customers are provided an equal amount

of money to purchase assets for production and business, but in the form of financial leasing, the customer will be directly provided the assets that customers are demanding to use Thus, sponsoring through financial leasing ensures the goal of loans more

- When sponsoring through medium- and long-term credit, the banks usually require customers to the mortgaged asset, however, when using the services of financial leasing the lessee does not necessarily have the mortgaged asset because the leasing asset (owned by the lessor) can be considered as collateral

- With the financial leasing, the applicable interest rate is usually higher than in the medium and long term loans because that interest rate is usually calculated based on the interest rate of medium and long term loan plus a certain percentage of the cost of managing the asset

- In the medium and long term credit, the transaction only usually the participation of lenders and borrowers, and in the financial leasing has three partners: supplier, lessee and lessor

- In the medium and long term loans, the maximum period of loan is 5 years, but

in leasing, the period of time equals to the depreciation of product, can extend from 10 to 12 years

- In the medium and long term loans, the borrowers face the risk of asset „s value, but in financial leasing, the lessor face the risk of asset „s value

- In the medium and long term loans, the loan does not include the tax, but in financial leasing, including the tax

1.1.6 The role and significance of financial leasing

a Benefits for the lessee

Applying the form of financial leasing has many advantages compared with purchasing new assets or borrowing the loans from banks, especially for newly established enterprises or small and medium enterprises

- Firstly, the cost of finance leasing is included in the costs before determining the profit before tax, thus saving an income tax

- Secondly, the lessee can increase the production „s capacity with the restrictive conditions of investment capital When selecting the leasing equipment instead

of buying, businesses can avoid the need of mobilizing capital to pay for the device at once At the same time, by stretching out payments over the life of the assets, the company can offset the cost of the device by the lucrative terms from that investment In addition, the fixed periodically payments help to balance the payable, intended to make arrangements to facilitate the funding and reporting

b The benefit for the lessor

- Financial leasing is the method of restricting to a minimum the risks that may occur to the lessor Because during the period of the leasing, the lessor remains the owner of property legally Therefore, if there are threats to the security of the leasing asset (such as the lessee is falling into bankruptcy or dissolution )

or the lessee fails to pay on time, the lessor has fully capable of collecting the leasing immediately On the other hand, the capital in financial leasing is shown

in kind (asset) and should not be affected by inflation The lessee is not

response for the risk of reduction in value of assets because of the objective conditions

- The lessor can be sure that the money is used for the right purposes, such as in the contract, because in this form, the lessor directly buys machinery and equipment from the supplier (usually after when the lessee has chosen) and therefore, the lessee does not have the opportunity to use the funding for other purposes Thereby, the lessor ensure the ability to recover debts from the lessee

- In addition, the financial leasing has a quick procedure than loans from bank, leasing contract is treated as a secured loan to help companies save time and reduce costs at the stage of evaluation Collateral,…

c The benefit for suppliers

The manufacturer (or supplier of equipment) when selling their products in the market, are keen buyer will pay the enough money to the manufacturer (or supplier of devices) and the lessee has working capital, makes opportunities to expand the business production In reality, not all stakeholders have not enough capital for buying equipment or

in the case businesses afford the capacity of finance but they do not want to invest this money to serve as working capital for production and business activities Therefore, through financial leasing, the lessor in this case would buy the asset and refund the amount

of capital corresponding to the value of assets

Through the financial leasing, the manufacturers (or suppliers) will find out the essential needs of the lessee, then they have plans to invest properly

Through the financial leasing, the manufacturer (or suppliers) can sell old equipment, export new equipment or getting advice to apply the level of technology for matching businesses, markets and the macroeconomic environment

d Benefits for the economy

The financial leasing contributes to the development of the economy This represents:

- With the economy, financial leasing is an effective capital of channel, attracting the capital from idle resources in the economy and transfering to the object which is required in the capital through financial leasing activities In particular, during the period of economic globalization today, the financial leasing not only help the domestic capital flows but also in the international through leasing the imported machinery and equipment from abroad, the establishment of financial leasing companies with joint venture or 100% foreign capital

- In addition, the development of financial leasing activity has been providing financial effective forms for businesses, especially in the supply of medium and long-term finance, complete each step to help the financial system of the economy Financial leasing not only reduces the burden on commercial banks but also an additional method to diversify the types of financial services, contributes to financial system efficiency and stable operaten engagement

1.2 The theory of management of financial leasing asset

1.2.1 The concept of management of asset in the financial leasing

Management of asset in the financial leasing activity is the implementation of the monitoring and inspection of the asset and equipment during the implementation of the contract: since the handover of assets until liquidation the contract in order to classify and evaluate the assets, warned about the use of assets to ensure the quality of credit At the same time, the management of rental properties must be in terms of both physical assets and value

1.2.2 Content of management of asset in the financial leasing

Standing on a point of view - property lease, financial leasing companies must manage their rental properties The content of leasing asset management may be divided over time as follows:

a The process before handing over of asset:

- If the asset has the stage of manufacture, installation, commissioning, the lessors and lessees monitor, transfer and accept the asset

- Registering the financial leasing contracts in Central property transactions Register - the Ministry of Justice Results of registraten must be made in writing with the seal and signature of the competent authority

- For vehicles in circulation must be registered by the provisions of the State, the management of asset Department prepares the paper records and implements the registraten as prescribed After the registraten, the original paper records are kept, and the medical records are transferred back to the lessee

- For vehicles must be registred to circulate by the provisions of the registry agency, the management of asset Department prepares the paper records and implements the registraten as prescribed The original registry records are transferred to the lessee, and the lessor keep the medical one

- Negotiate, negotiate terms, scope of insurance and making insurance contract The insurance contract must clearly reflect the insurance beneficiaries is the

lessor, the scope of insurance consistent with operatenal characteristics and the operaten of the assets

- Recognizing the state records of origin, engineering, condition to the database before handing over All the records transfer to customers should be made in delivery records for checking

- Making the records, history of asset, and planning the test of assets then put into the database

- Tagging and handing over the asset

b The process after hand over and use the asset

In the process after the assets are transferred to the lessee, the main task of asset management is to monitor the entire physical changes and the value of assets in the duraten

of the financial leasing

Earlier every 06 months, the department of asset management plans the inspection

of assets each times, each region (North - Central - South)

- Managing the records of asset includes:

o Certificate of registraten

o Operating license:

 Registering for vehicles of transportation, special-motor vehicles

 Registering for river ships, waterway vehicles: checking yearly

 Registering for seagoing vessels: each certificate of each item components in the board has its own deadline of time, the deadline depends on classification of ship

 Register for cranes, tower cranes

 Verifing the pressure assets

o Certificates of insurance: validity period

o The records of inspecting assets

- The situation of asset:

o The adequacy of assets

o Purpose of using assets

o Time of using assets

o Scope of using assets

o Change, depreciation of assets

o Failure and replacement of assets

- The situation of use, maintenance and preservation of assets:

o Regular maintenance has implemented fully and properly or not

o The preservation of assets during use and at the end of operating hours

o The driver of means have full license or not (with some vehicles and machinery required for the operator license)

- Safety equipment and infrastructure to ensure the safe operaten, proper technique

- Assessing the profitability of the asset (asset „s involvement in production and business activities and generate revenue for clients)

c The process after the end of contract

- Register of removing the financial leasing contracts in Central Register of property transactions - the Ministry of Justice

- In the case of the lessee repurchases, the department of asset management delivers the legal and original records to the buyer in order to transfer the ownership of assets from the lessee to the purchaser

- In case of the lessee does not repurchase the assets, the department of asset management performs the jobs for supporting the company of valuation gives the value of assets for sale, or for continually leasing

1.2.3 The indicators for managing the financial leasing asset

In order to effectively evaluate the management of financial leasing assets, we can use the following criteria:

- The rate of loss or misplacement of assets

o Meaning: to express the rate of asset is not found, lost through a cycle of inspection, this criteria not only evaluates the effectiveness of management of asset, but also evaluates the risk assessment when payback the capital

o Calculation: (The number of assets is lost, not found)/(Total the number

of assets is inspected)

o This rate is meant to be good if it is below 0,5%

- The proportion of assets are lost because of flood and disaster

o Meaning: to show the proportion of assets of malfunctioning, damage caused by natural disasters such as floods through a cycle of inspection Characteristic of the shipbuilding companies is located near the sea sothat they are huge influenced the weather conditions on production and the safety of production

o Calculation: (The number of assets is damaged)/(Total the number of assets is inspected through a cycle of inspection)

o This rate is meant to be good if it is below 3%

- The proportion of assets is damaged by the excessive process of extraction and use or by the differences compared to the technical requirements of the assets

o Mean: to show the proportion of assets of malfunctioning, damage because of the subjective reasons from the lessee used over a cycle of inspection This indicator evaluates the capabilities of managing asset

by the lessee, then it could put the additional measures immediately to avoid the unwanted loss in the future

o Calculation: (The number of assets is damaged)/(Total the number of assets is inspected through a cycle of inspection)

o This rate is meant to be good if it is below 5%

- The rate of assets to be insured

o Mean: represents the number of assets is being insured in one year This indicator is very important for the assessment of risks to the credit

o Calculation: (The number of assets to be insured)/(The number of financial leasing assets in one year)

o This rate is meant to be good if it is over 80%

- The proportion of assets to be renewed insurance

o Mean: represents the number of assets to be renewed insurance in one year This rate evaluates the monitoring of managing and buying the insurance of assets

o Calculation: (The number of assets to be renewed insurance)/(The number of financial leasing assets expried the insurance in one year)

o This rate is meant to be good if it is over 85%

- The rate of evaluating the profitability of assets: the assets have been engaged

in production and business processes of customers and generated their revenue

o This rate is meant to be good if it is over 70%

- The rate evaluates for selling off and recovering the bad debt

o Mean: represent the effectiveness of selling off the asset and recovering the bad debt for the assets are not involved in the business activities of the customer and the customer is not able to pay the financial leasing liabilities

o Calculation: (The number of assets to be sold off)/(Total the number of assets which the customer is not able to pay the financial leasing liabilities)

o This rate is meant to be good if it is over 60%

In addition, the assessment of the management of financial lease assets is also seen through the assessment of the level of credit risk of assets and leases Credit risk is represented by the customer's overdue debt and the customer's overdue debt ratio on the total outstanding balance of a financial leasing company Some indicators to assess asset management on a value perspective include:

- Recovery criteria

o Significance: demonstrates the effectiveness of asset management in recovering the principal of financial leases

o Method of calculation: (Actual net debit)/(debt receivable)

o This rate is understood to be good if the rate is over 80%

- Bad debt ratio

o Significance: Expresses the credit quality of financial leases

o Method of calculation: (Potentially irrecoverable debt)/(Total outstanding loans)

o This rate is understood to be good if the rate is above 5%

1.2.4 Comparing the management of financial leasing assets with the management of pledged, mortgaged assets in other credit institutions

The biggest difference between the financial leasing assets and the pledged and mortgaged assets is the financial leasing assets excluding real estate (assets in the land, the rights of using land) and input materials Thus in the management of assets are also many differences

From the point of view of financial leasing company compared with the management of collateral and pledged assets at other credit institutions, the management of financial leasing assets has some differences as follows:

The differences in the types of financial leasing assets and mortgaged or pledged assets

Table 1.2: Table of comparing the management of collateral, mortgage with

financial leasing assets

pledged assets

02 Fluctuation of quantity Controllable

uncontrollable

04 Fluctuation of market of

05 Maintaning/Repairing Controllable Uncontrollable

06 Licensing/renewing the

license

Controllable (The licensing procedure/renewing the license needs to require the participation of asset „s owners - are the lessor)

Uncontrollable

uncontrollable

08 Changing the place of

Almost uncontrollable With the pledged and mortgaged assets, through the process of revaluation, if the value of revaluation is lower than the initial valuation, to ensure the loan the mortgager must pledge the additional assets to ensure the total value of mortgaged assets equals the value of the initial valuation in order to provide credit This makes a huge difference in the management of financial leasing assets

With the financial leasing assets, if the value of assets decline the lessee shall have

no the additional mortgaged assets to secured the original loans Therefore the risk stemming from if the lessee make the value of assets declines rapidly and then the lessee fails to pay debts led to the liquidation of contracts, the value of loss between the current debt and the value of liquidation is unlikely to withdraw (though the lessee after the end of the contract still records this debt)

1.3 Factors affecting the management of financial leasing assets

1.3.1 Subjective factors

The subjective factors affecting the management of financial lease assets include: The organizational structure of the company, decentralization, functions and duties of the asset management department, risk management systems, internal control checks in the Company In addition, the management software system, database information system on asset situation are also a factor directly affecting the financial leasing activities A good management software system will greatly assist in the management of rental properties Another factor that directly impacts on the leasing asset management is the process of internal asset management In particular, the asset management will be influenced greatly

by personnel factors and qualifications of professional staff directly assigned to manage financial leasing assets

- Fluctuation in the weather, disaster of earthquake and thunderstorm damages the assets

CHAPTER II: THE SITUATION OF MANAGEMENT OF THE FINANCIAL LEASING ASSET IN VINASHIN FINANCIAL LEASING COMPANY

2.1 Overview of Vinashin Financial leasing Company

2.1.1 The foundation and development of the Company

The VFL company is State Leasing Company was established and operates under license for establishment and operaten No.79/GP-NHNN of Vietnam State Bank granted March 19, 2008, the certificate of business registraten and tax registraten of limited liability company No.0102718939 by the Department of business registraten - Department

of Planning and Investment in Hanoi the first time on 10/04/2008, registering changes 8th

on 04/04/2016 The company officially put into operaten on 17/07/2008 with the initial charter capital of 100 billion VND

VFL company is an independent accounting company and operates mainly in the field of finacial leasing, owner of Vinashin Finance Company VFC is a State Finance company belonging to Vietnam Shipbuilding Industry Corporation, manufacturer of Vietnam Shipbuilding In 2008, Vietnam shipbuilding ranks fifth in the world about the value of the order, in which Vietnam Shipbuilding Industry Corporation accounted for over 80%

As a financial intermediary, with the identification of the customer is the center of financial leasing Operatenal objectives of the Vinashin finance leasing companyas a bridge between financial investors, manufacturers, suppliers to customers of financial leasing In particular, the strategic and longterm objectives of the Vinashin finance leasing companyis to become a bridge between Shipbuilding Industry Corporaten with customers are domestic and foreign ship owners Through the operaten of financial leasing, the Vinashin finance leasing companywill a channel of investing the capital of Shipbuilding Industry Corporaten for the member units

As of December 31, 2015, after nearly ten years, Vinashin finance leasing company

is a financial intermediary with a charter capital of VND300 billion

Name of company Vinashin Financial leasing Company

Name of transaction Vinashin finance leasing

Head office No.120 Hang Trong street, Hoan Kiem district, Ha Noi

Telephone (04) 22210482

Charter capital: 300 billion VND

Ower: Vinashin Finance Company

The certificate of

business registraten:

No.0102718939 Department of Planning and Investment in Hanoi the first time on 10/04/2008, registering changes 8th on 04/04/2016

2.1.2 Characteristics, main activities of the Company

a Characteristics of the Company

- Exploit the internal funds, foreign currencies under the provisions of law and the State agencies competent to fulfill capital the requirements for financial leasing

- Implementing the financial leasing operatens for enterprises established under the laws of Vietnam in accordance with the regulations on financial leasing of the State, the State Bank, Limited Shipping Industry Finance Company; ensuring the principle of efficiency, conservation and development funding

b The main fields of activities of the Company

- The activities of owners:

o Financial leasing

o Purchasing and subleasing through the financial leasing

o Shortterm loans for the lessee

o Implementation of factoring for the lessee

- The activities of liabities:

o Accepting the deposits, loans from organizations and individuals at home and abroad

o Issuing bonds, deposit certificates and other valuable papers to mobilize capital at home and abroad

o Receiving capital entrusted to financial leasing

o Buying the receivables from financial leasing contracts

- Other activities:

o Get entrusted asset management, including the lessee's rights

o Investment consulting, financial advisory to financial leasing clients

o The financial products

2.1.3 Characteristics of the management system of the Company

a The principles of organization and administration

- The Company is managed by Limited Shipbuilding Industry Finance Company about the capital, the strategic development, the organizational personnel and

by the management of the State Bank about the content and scope of operatens breast

- The company carries out operatens in accordance with the law on finance, credit, financial leasing and completely responsible before the law for all its business activities

- The company is subjected to the management, inspection and supervision of the SBV and VFC

b The organizational structure of the company

The VFL company was held in the form of a subsidiary of Limited Shipbuilding Industry finance company, with its own legal personality

The company officially put into its operaten with a simple organizational model under the basic array operatens of a financial institution, initially with 19 employees are divided into three blocks (business, supervise and support) to match decentralization and monitoring, ensuring consistent and efficient business operatens early stages

Currently, in order to meet compliance with the operatens as well as the requirements, the organizational model was reorganized with 19 staffs on 31/12/2015 The organizational structure of the company is reflected in the following diagram:

Figure 2.1: The organizational structure of VFL company

- Business includes: Customer and Evaluation departments, Department of

Planning and Capital

- Supervise and support includes: General Division, Risk Management Division,

Administraten, Finance - Accounting

- The internal audit department under the control Board

To meet the requirements of growth and sustainable development, Vinashin finance

leasing decided selection the consulting firm and auditing consulting partner KPMG is

re-designed management structure coupled with the completion improve business processes

and manage risk In 2011, KPMG has completed the organizational restructuring and build

the key business process and operatens

Currently, the functions of managing assets are under the department of customer,

with the functions and duties as follows:

- Lead the implementation related the professional asset management and

insurance operatens

- To provide professional guidance to other staff performs the function of tasks

by the Head of Customer department and Director

- Implementing the report and take responsibility before the Head of Customer

department and Director about the results of its operatens of Asset management

- For Risk Management and Internal Control department:

o Be directly administrated by Director, developing the policies and risk management strategies of the Company for the Directors Board of Directors approve

Risk management General

Accouting - Finance Administraten

o Develop, establish systems of risk identification, risk scenarios and responses

o Collect and manage the general economic information and information

of economic sectors related to the business strategy of the Company

o Combined building the online information system of Director for all customers, creating updated systems of market information, analysis and evaluation of the new product forecasting

o To advise the Director on the organization and planning to implement the risk management of the Company

o Manage and monitor risk management activities as assigned or authorized by the Directors each period, to ensure safety, efficiency and compliance with the current regulations

2.1.4 Overall performance of the Company

- Activities of mobilizing capital

Mobilization of capital is one of the major activities and the most important activities of credit institutions This activity provides the capital for Vinashin finance leasing company can perform other activities such as providing for credit and financial services to customers

With specific activities in the field of supply of medium and long-term credit, the consistent view of Vinashin finance leasing company is mobilizing the medium or long-term capital is a fundamental solution to liquidity management Therefore, Vinashin finance leasing company has always focused on developing the tools to mobilize the long-term capital Besides, deposit and short-term investments through the currency market, the valuable papers is focused to improve the income and daily liquidity guarantee for Vinashin finance leasing company

According to Decree No.16/2011/ND-CP dated 02/05/2001 of the Government about the organization and operaten of the financial leasing companies, the financial leasing company is to mobilize capital from the following sources: term deposits received from a year or more of the organizations and individuals in accordance with the regulations

of the State Bank; Issuing bonds, deposit certificates and other valuable papers with maturity of over one year to mobilize capital from organizations and individuals at home and abroad as approved by the State Bank; Loans from financial institutions, domestic and foreign credit; Get other capital sources stipulated by the State Bank

Table 2.1: Structure of deposits of VFL company (2009-2011)

Total mobilized capital 967.717 100 932.485 100 885.800 100

Structure of deposits of VFL company (2012-2015)

No Criteria

Year 2012 Year 2013 Year 2014 Year 2015

Exchange

Proportion (%) Exchange

Proportion (%) Exchange

Proportion (%) Exchange

Proportion (%)

1 Deposit of credit

institutions 763.120 86 763.120 86 763.120 90 752.420 90

1.1 Vinashin finance

company 703.015 92 703.015 92 703.015 92 692.315 92 1.2 Other institutions 60.105 8 60.105 8 60.105 8 60.105 8

2 Loans from credit

2.1 Vinashin finance

2.2 Other institutions