Leasing sector was one of the first and worst affected: the downturn started mid 2008 and lasted for 3 years and overall the market dropped to less than one third of the volumes of “ the golden year” 2007, with main markets of automotive, transportation and construction also severely affected. At that point in time, leasing was the solution for vehicle financing so no more vehicle sales in the market meant no more leasing. The stoppage of new leasing financing was immediate and corroborated with the deterioration of the portfolios, it incurred losses to most of the leasing companies.
Like in any atypical situation with the leasing sector taken out of its comfort zone of vehicle financing, the players had to find new ways to continue the business. The following year – 2009 - was the year of deciding the way to take. Some players closed the business to minimize the loss, some players focused on a specific market segment or market niche in close collaboration with vendor suppliers, others reduced the business only to cover a specific sales channel, most of the times based on existing extensive coverage networks of their financial groups and a few others chose to diversify and look for opportunities in new markets which at the time did not use leasing as a financing solution.
Each strategy had its own set of benefits and risks. Looking at the 2012 year end results for the sector with the first positive year in term of new financing volumes (+10% yoy growth) the conclusion is that it was the set of conscious, courageous strategic decisions of each company that made the sector recover. It is a case of diversified and innovative approach on the same, old business line: some companies continued to finance only vehicles but focused to improve the customer service and satisfaction; other developed very competitive financing products for agriculture equipment; some other players developed and improved the asset-based approach in transportation sector, providing very fast response time to the clients. But no matter the specific decision, the driver for each company was the need to move forward: the only way a business can survive and develop in an adverse environment is to change, to improve, to find new revenues sources while adapting the cost structure to the evolving reality. In my position of President of ALB (The Romanian Financial Companies Association), the main satisfaction is that the industry has widely adapted during the last years the mentality of looking for continuous improvement of service to the clients.
As for our specific case at UniCredit Leasing, we decided to look at the market from the perspective of the destination of the financing and to extend the business in relation to investment projects. It meant to switch from mainly vehicle financing (related sometimes more to consumption due to private usage of the cars) towards equipment financing, looking for projects that have the capacity to create value while maintaining a limited risk during the projected life span. It is a new approach for leasing, combining both the asset based approach – you need to know in every detail the evolution of the asset value and maintenance during its lifespan – with the cash flow based approach - where the deep understanding of the business model and sectorial specifics are mandatory. This combined approach allows the leasing company to value the total project, to understand the cash generation potential and to finance the assets in this broader perspective under a faster and maybe more flexible manner.
In this approach we managed to arrange during the last years financing of technical infrastructures for various sectors - energy, agriculture, medical, manufacturing. With extensive know how of the sector in other countries, UniCredit Leasing was one of the first financial institutions to finance a renewable energy project in 2010; also an energy efficiency project was financed for an industrial company that installed a cogeneration unit to reduce the energy costs. Still, despite the current public debate on the energy strategy and soon-to-come change of support scheme for renewables, we believe that the sector needs new investments not only in new production units but also in transportation and distribution infrastructure and we are looking closely to the future developments.
Agriculture is another sector that needs important investments to raise the productivity level; besides the regular machinery financing, we have implemented during the last three years a program for financing new, modern irrigation equipment for a selected number of agri producers and based on the good results we aim to extend the approach in the future. Also for medical sector we financed the equipment infrastructure for a number of both public and private clinics and hospitals, as the technological gap for this sector is also rather significant. Finally, we can also name a number of projects in various fields (oil & gas, automotive, metal processing) where our leasing financing was used for adopting new technologies, increase productivity and add value for the investors and indirectly helped creating new jobs and bringing more stability and maybe wider perspectives for the local communities.
As always, it is not only about the bright side of the moon, because some of the projects failed to match the initial expectations; still, the quality of the portfolio and the payment behavior of this financings related to technical infrastructure is significantly better than the sector average for leasing, giving us the hope and trust that we have taken a good path in our way forward. The main positive part of the last years remains the fact that leasing sector found its way out of the difficult years by trying new options, failing and trying again. It deploys now a sounder structure and mix of products and channels and more attention to client that makes our sector stronger to face new challenges.
Another interesting observation of the sector during the last years is that evolution of leasing is a sensitive barometer of the economic environment, anticipating the GDP evolution for Romania. When leasing collapsed in 2009, the Romanian economy followed with a severe reduction of GDP; 2011 marked the stabilization of leasing and also the first growth year for the economy. Like in our case, the economic recovery was based on the efforts of stakeholders in various sectors to find new ways to produce more with less, to sell more and to address new markets, to adapt – we should not forget that even the public sector, although under its naturally slower decision process, undertook a painful adjustment when salaries were reduced. The main characteristic for all these measures that stabilized both the macro-environment and also specific sectors in Romania is the need to look at challenges from a different perspective and to act based on a long term strategy.
With public sector consumption and investment capped due to public deficit limitation, with private investment limited due to a higher degree of uncertainty related to the evolution of our main export markets and private consumption limited in various ways at both institutional and individual level, I dare to say that growth could come from expanding the efforts of all stakeholders in any sector to act for more flexibility, to look for solutions in new directions, to think always from a fresh perspective on the business. And maybe for some of your projects where you need a financing solution you can consider leasing as a viable option because nowadays in Romania leasing can be much more than just a way to buy your next new car.