By the end of 2009, “new volume per year” decreased more than 4 times versus 2008, reaching to 1.3 billion EUR from 4.8 billion EUR. The level of “new volume per year” stayed almost flat for the following years until the end of 2012 and reached to 1.36 billion EUR.
In order to see how the market declined starting with 2009, it is enough to compare the volumes of contracts in 2009 with that of 2004. The volume for 2004 was 1.38 billion EUR versus 1.29 billion EUR in 2009 and still 1.36 billion EUR in 2012. In other words, the level of activity in 2012 is in the same level as of 2004.
Because of the drastic decrease in the activity, overall portfolio (asset size) of the leasing market fell below 3 billion EUR which is almost half of 2008 figure.
The major players in the market are mainly bank subsidiaries with a share of around 60-65% for the last couple of years and more precisely 63% as of 2012. Then, there are the captive leasing companies of vehicle dealers with 23% and independent leasing companies with 14% market share.
From the perspective of financed assets; 70% of them are vehicle, 26% are equipment and just 4% are real estate. The trend for the last 5 years period is same for vehicles, increasing for equipment and almost flat for real estate.
Similar as the banking sector, majority of the financial leasing contracts are signed with foreign currency (mainly EUR) indexed terms. This is generating a foreign currency risk pressure on the financed clients. In the beginning of 2013, National Bank of Romania started to implement some restrictions on the FX lending capacity of leasing companies. After this measure, the vulnerability of the clients against FX fluctuations is expected to decrease in time.
Due to financial turmoil starting with the last quarter of 2008, financial leasing companies faced high ratios of problematic receivables. Although there are not clear figures declared regarding the level of problematic contracts, receivables past due more than 90 days reached to almost 30% of the total portfolio as of 2010 June. This issue combined with the low rate of repossession activity. As a result, most of the leasing companies had to register big losses which were pulling the capital adequacy ratios far below the accepted levels by the National Bank of Romania. Some leasing companies increased capital, some stopped lending activity and some of them even decided to exit from the market.
Especially during 2009 and 2010, collection and repossession activities became much more important than sales. Some leasing companies reorganized their structure and transformed part of the sales force into collection force. Soon after, bad debt collection agencies came into the scene. Much more attention started to be paid to functions such as asset management, asset valuation, recovery, repossession and remarketing. Overall number of employees decreased drastically and every leasing company started to find methods of cost optimization.
After all above mentioned measures and improvements, supported with a small increase in the lending activity, the financial statements which were negatively affected started to recover slowly in 2011. But most of the leasing companies still have to fight with high levels of problematic receivables mainly generated before 2009 and especially from the big booms of volumes in 2007 and 2008 (almost 4 times bigger than the ones in 2012). Nevertheless, they are trying to sell the recovered assets with the highest possible price which is slowing down the remarketing performance and resulting high levels of non interest earning assets (or stocks in other words). This should be considered as cost which had to be paid on the path for a mature leasing market. A nice Romanian proverb says “If you burn up your tongue because of hot milk, you start to blow the yogurt before eating.” Romanian leasing companies got many lessons which were proven by the lower problematic clients in their portfolios in 2012.
Expectations for 2013
New volumes are expected to grow between 3-6% compared to 2012. Macroeconomic environment does not seem to be supportive for more growth in leasing activity. It looks like that those golden times of 2007 and 2008 will be remembered as nice memories for at least another couple of years. On the other hand, leasing companies focused on smaller but profitable and healthy portfolios.
You will find the full report in the attached pdf document
