15 years of leasing business in Moldova: through diversification to expansion

15 years of leasing business in Moldova: through diversification to expansion

 InfoMarket News Agency commentary

The year 2002 became a landmark year for the financial market of Moldova: the first leasing companies began working in the country, this becoming one of the alternatives to bank lending. First of all to car loans. It became easier to buy a new car, and this, in turn, gave impetus to the development of insurance companies (specifically to CASCO, a mandatory requirement for lessees).

The first leasing company, EuroLeasing, was registered in July 2002 and worked mainly on funds attracted from Victoriabank; The second - MAIB-Leasing - in September 2002, initially it was funded by Moldova-Agroindbank. The third was IMC Leasing, later renamed to Express Leasing & Microfinance.

In 2005, the parliament adopted a new law on leasing, which entered into force in the second half of the year, and this gave the market a new impetus. In the summer of next year, Total Leasing - the first leasing company with 100% foreign capital was registered in Moldova. Attraction of funds from abroad caused the market to stir up and lower rates: in 2006, average rates for car leasing were 17-18% per annum in foreign currency; Total Leasing offered 14-15%. Older companies at that time had to adapt, search for cheaper resources and reduce margins.

The "golden" time for leasing was 2006-2007, for several reasons:

- fairly acceptable rates for borrowers - an average of 15% per annum;

- the leasing period has increased from the initially proposed three years - to five;

- сommission for issuance decreased (from 2% to 1-1.5%);

- for high-quality customers, the amount of the down payment could be reduced from the standard 30% of the purchase amount to 5% (symbolic initial participation);

- insurance companies began to provide insurance services to CASCO in stages (most often by payments twice a year or quarterly).

Adding to this was the speed of service and decision-making in a period of one to three days.

In banks, the process of obtaining loans is more thorough, multi-level and requires more documents and, therefore, time. And the banks could not do otherwise. When issuing a loan, for example, to buy a car, it is immediately drawn up for the final buyer. In the event of problems with the client with repayment of the loan, the relationship between the bank and the client becomes more complicated and requires more time, often judicial intervention is required.

Leasing, in contrast to a bank loan, assumes that the acquired property (car) remains in the possession of the leasing company until the end of the contract. This means that the buyer is constantly under control. In case of non-repayment of a monthly payment, he may not receive from the leasing company a way-sheet necessary for driving a vehicle both on the territory of the country and for traveling abroad. If the buyer does not pay three or four months in a row, the leasing company can easily find the car through the police and take it away - after all, it is its property. Also, the customer’s initial payment of 30% of the car’s price makes it possible to easily sell a car on the secondary market in case the buyer refuses to pay further under the leasing agreement. In addition, the assets purchased in leasing are insured by the buyer.

It is worth noting that the initial fee is a very sensitive issue. During the leasing’s “good times” in (2006-2007) companies practiced dumping, allowing some customers to contribute only 5% of the cars price, this was part of their strategy to win over the clients. This was the reason that caused severe damages to many companies during the 2008-2009 crises. It's one thing when it comes to 5% of the price of an inexpensive machine; and it’s a different problem in the case of 5% of the cost of a premium car. The client drove a car that costs 80-100 thousand euros for 6 months, paid for it 4-5 thousand euros and "returned" the car to the leasing company. Many companies suffered losses due to such schemes.

During the same 15 years also took place unwanted situation, when customers lost the acquired property through the fault of the leasing company. Most leasing companies operate with borrowed funds, and in case when a company could not repay its loan on time, its clients had problems as well: the creditor seized all the assets of the leasing company, including the one that was bought by customers (or almost bought out), but Property rights were not re-registered. People lost cars, went to court... Some managed to return their funds and property, some didn’t. Based on such examples one can advocate the advantages of bank lending for a borrower, when he is protected more than the lessee. But, fortunately, there were very few such examples in the Moldovan leasing history, as borrowers began to pay attention to who is the founder of the leasing company and who is financing the company.

The crisis forced everyone to reformat and become more cautious: after all, leasing technologies weren’t invented for no reason, it could happen that even the best customer can cause losses at some point. Nevertheless, leasing remains a very attractive tool for companies and individuals, primarily for the renewal of the car fleet.

By the end of 2016, cars accounted for 88.1% of all leases. This is less than in 2015 (90.1%) and in 2014 (93.2%); But more than in 2013 (84%).

Structure of fixed assets leased (million lei) 

 

2010

2011

2012

2013

2014

2015

2016

Fixed assets leased (total)

535,4

837,1

816,1

1136,8

1071,1

1089,2

1231,5

including cars

449,1

661,5

712,3

961,5

997,7

981,8

1085,2

machines and equipment

46,3

94,3

64,9

99,7

27,3

60,5

88,5

building and specialized constructions

39,5

57,7

20,6

74,4

32,4

28,1

55,4

other fixed assets

0,5

23,7

18,3

1,2

13,7

18,8

0,5

According to official statistics, five leasing companies (out of 26 currently operating) account for up to 80% of the market. Throughout years various companies were leaders by the volumes of leased assets. Still a certain pattern is obvious: active participants in the last five years were seven major players (in alphabetical order): BT Leasing MD, Capital Leasing, Finance Leasing Company, MAIB-Leasing, Total Leasing & Finance, Raiffeisen Leasing, Victoria Leasing.

TOP-5 leasing companies in terms of leased fixed assets 

 

2012

2013

2014

2015

2016

1

MAIB Leasing

Finance Leasing Co.

MAIB Leasing

Total Leasing

BT Leasing MD

2

Capital Leasing

MAIB Leasing

Total Leasing

BT Leasing MD

Total Leasing

3

Total Leasing

Total Leasing

Finance Leasing Co.

Capital Leasing

Capital Leasing

4

Raiffeisen Leasing

Capital Leasing

BT Leasing MD

Finance Leasing Co.

Finance Leasing Co.

5

Victoria Leasing

Victoria Leasing

Capital Leasing

MAIB Leasing

Raiffeisen Leasing

TOP-5:

market share

67%

72%

70%

72,25%

78,1%

During the last15 years the leasing market has undergone certain changes. A main one was the diversification of their businesses. A number of companies have even changed their name. Thus, Express Leasing became Express Leasing & Microcredit; Total Leasing became Total Leasing & Finance; Top Leasing became Top Leasing & Credit, etc.

Thus, some companies that positioned themselves as leasing entered another sector - non-bank lending (microfinance organization). These companies have two types of activities, two types of reporting and two lists of competitors. In the non-banking and micro-credit market, competition is tougher than in the leasing market: there are 116 companies (as of 2016).

Nevertheless, some leasing companies managed to solidify their position in this market. In 2016 such organizations issued loans for 3.8 billion lei. Of these, only two leasing companies account for 18.5% or 0.7 billion lei; namely Express Leasing & Microcredit - almost 11%, Total Leasing & Finance - 7,5%. A year earlier, in 2015, loans valuing 2.87 billion lei were issued in the non-bank lending market by 91 functioning companies. At the same time, the two above-mentioned companies accounted for 19.8% of the total market volume (10.25% and 9.53%, respectively), or 0.57 billion lei of loans issued.

Participants in the segment of non-bank lending (microfinance organizations) compete not only with each other, but with bank lending to retail, small and medium-sized businesses. In the past year, banks, with increased liquidity, have intensified the fight for customers, the number of which, due to external and internal factors, has greatly decreased.

At the end of 2016, the credit portfolio of all commercial banks in Moldova totaled 34.8 billion lei, down 9% year-on-year! The number of newly issued loans decreased by 12.8%. At the same time, the share of unfavorable loans for the year increased by 6.4 percentage points, amounting to 16.3% per total. The market has shrunk significantly, and the portfolio has lost in quality.

If, based on the results of 2016, the credit portfolio of commercial banks (34.8 billion lei), microfinance organizations (3.79 billion lei), and leasing companies (1.23 billion lei) were combined, then the "aggregate" credit market of Moldova would total a 39.82 billion lei in 2016. Of these, banks account for 87.4%; non-banking credit organizations - 9.5%; leasing companies - 3.1%. Given that leasing companies occupy about a fifth of the non-bank lending market, they account for about 5% of the country's loan market.

For comparison. At the end of 2015, the "aggregate" credit market of Moldova was 42.15 billion lei. Of these, the loan portfolio of banks - 38.19 billion lei (share - 90.6%); of microfinance organizations - 2.87 billion lei (share - 6.8%); of leasing companies - 1.09 billion lei (share - 2.6%). It turns out that in 2016 the share of banks in the "aggregate" portfolio has decreased, and the share of microfinance and leasing companies has grown.

Some participants in the leasing market, on the contrary, believe that everyone should work according to their own specialization. The entrance of some leasing companies in the microfinance market on the one hand gives more profitability, on the other - carries more risks.

One more thing. Large companies (especially with foreign capital) have long advocated that leasing companies must be licensed and placed under the regulation of the National Bank or the National Commission on financial markets. This would allow establishing and controlling common rules of the game on the market, increasing its professionalism, stability, transparency, and the regulator will be able to react in case of violations of legislation and consumer rights. But this is possible only if the regulator not only receives contributions from companies, but do actual work in this direction and allocate specialists for this.

Currently, data on the activities of leasing companies are published by official statistics, but on the market per total, without offering data on each company. Information on microfinance organizations is collected and published by the NCFM. At the same time, unlike commercial banks, they do not have a state regulator, which could exercise additional control.

The opponents of licensing are also very persuasive: both leasing companies and microfinance organizations do not attract funds from the population, but operate either using their own funds (at their own risk) or with funds attracted from other legal entities, including international ones (on the basis of bilateral Contracts). In their opinion, additional interference of state bodies in the work of independent commercial structures is unacceptable.

Recently, the prospects for the development of the leasing business are acquiring new realities. On the one hand, commercial banks from the height of their increased liquidity began to fight more actively for customers, offering very favorable conditions for lending, both in lei and in currency. On the other hand, the client market has greatly diminished, the risks have risen. In addition, under the pressure of international partners of Moldova, the country's banking sector is increasingly acquiring international standardization.

It's no secret that previously there were conditionally two types of bank borrowers: those who pass the standard procedure for assessing incomes and risks, and borrowers who got a loan due to interventions of “important” people. The second often become unfavorable and irrevocable loans. Although there are many exceptions, when the management and shareholders of the bank force the speed of decision-making for a very reliable borrower, who respects his obligations timely.

The current restructuring of the entire banking system leads to the fact that the "telephone right" phenomena completely vanishes. Thus, the borrower can influence the result and the deadline for making the decision only by providing the entire package of necessary documents.

In this situation, leasing companies benefit. They are still not licensed, do not have any separate control, risk either the shareholders 'money or the partners' money, and still are able to issue loans and leases to customers whose credit histories they know, at their discretion. In addition, the risks of leasing companies are less - the acquired assets remain in their ownership until the end of the leasing contract, and the technologies that have been using for already 15 years make it possible to apprehend well the client’s reliability and solvency.

Another advantage of leasing for many customers is the reduction of the currency difference. Several years ago, the National Bank changed the regulation on currency regulation, allowing leasing companies to settle with the seller (for example, a dealer who imports cars into the country) in foreign currency, without additional losses on the exchange difference. At the same time, clients of leasing companies also received the right to pay monthly payments in foreign currency. This is a serious advantage of leasing compared to other organizations (including credit organization), which are obliged to make payments only in the national currency on the territory of Moldova.

The prospects for leasing development in Moldova are very encouraging. In Moldova, the tax rate on luxury cars is increasing, which may lead to increased demand for medium-price segment cars. In neighboring Romania, the share of new car sales through leasing exceeds 70%, in Moldova - only about 30%. There is much to develop.

During the 15 years of existence and development of leasing in Moldova, the market has received a lot of invaluable experience and adequately occupies its niche, influencing the accompanying business segments. Thanks to leasing in the country, sales of new cars increased and CASCO insurance volumes increased. Many people continue to insure their cars after the end of the leasing term - the insurance awareness is growing.

Forecasts for near future are that some players will certainly remain in this segment, using bonuses of their own freedom against the backdrop of "tightening the nuts" in the banking system. Others, and it is not excluded, can be transformed into a commercial bank or be transformed and expanded, for example, by opening an insurance company, a pension fund, a venture fund, creating a financial holding company. Banks can follow the same path, but for them this will be more difficult due to many reasons. Leasing companies, on the other hand, especially those from among the top five, have the opportunity to continue diversification and not to give up the already conquered positions. // 07/21/2017 - InfoMarket.

 

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