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AFTER A STEEP DECLINE IN 2009, LEASING IN SLOVAKIA IS GROWING AGAIN

Leasing market revives

AFTER 2009, a year in which the Slovak leasing market recorded a brutal fall of 45 percent from its record high in 2008, the sector began to show signs of revival in 2010, especially in the final few months of the year. The leasing market reported annual growth of 7 percent over all of 2010 and prospects for 2011 are even more promising. Leasing companies estimate that due to the revival in Slovakia’s economy, the leasing market will grow by 10 percent or more this year. Leasing companies hope the turbulent times are finally over, but the aggregate volume of leasing contracts in 2010 amounted to €1.615 billion, putting it at 2004 levels, still significantly less than pre-crisis highs.

Commercial trucks are often financed via leasing.(Source: Reuters)

AFTER 2009, a year in which the Slovak leasing market recorded a brutal fall of 45 percent from its record high in 2008, the sector began to show signs of revival in 2010, especially in the final few months of the year. The leasing market reported annual growth of 7 percent over all of 2010 and prospects for 2011 are even more promising. Leasing companies estimate that due to the revival in Slovakia’s economy, the leasing market will grow by 10 percent or more this year. Leasing companies hope the turbulent times are finally over, but the aggregate volume of leasing contracts in 2010 amounted to €1.615 billion, putting it at 2004 levels, still significantly less than pre-crisis highs.

“As in 2010, businesses will be the main driving force for the leasing market in the movable assets sector in 2011,” Juraj Ebringer, president of the Association of Leasing Companies of Slovakia (ALS), said in mid February when discussing the development of Slovakia’s leasing market in 2010 and expectations for 2011. “Last year, deals in this sector rose by 10.2 percent. The typical commodity will be trucks.”

In describing the effects of the economic crisis, Ebringer said that it hit small and medium-sized businesses hardest. These did not have enough money to bridge the crisis period: he mentioned particularly truckers who normally use leasing to finance purchase of their vehicles. After demand for their services decreased, they were unable to maintain lease payments and many leasing contracts were terminated prematurely. This increased the volume of reserve provisions, the amount of money leasing companies put aside to compensate for possible losses. Moreover, he noted that many failed leasing deals have ended or will end in the courts, meaning that it will take some time for leasing companies to recover their losses.



2010 – A positive turn



Leasing companies regard developments in 2010 as having been much more positive, with the market returning to growth after the 2009 crash, even though it was still affected, either directly or indirectly, by the effects of the financial and economic crisis. Dušan Keketi, a member of the board of directors at UniCredit Leasing Slovakia, listed among the main factors behind the continuing difficulties in 2010 a drop in new investments, a reduction in operating costs, poor payment discipline, restructuring, and the failure of companies to fulfil obligations stemming from leasing contracts, resulting in the removal of leased items.

According to Volkswagen Finančné Služby Slovensko (VWFS), which specialises in leasing passenger and commercial vehicles, the market has partly revived and over 40 percent of purchasers used financial leasing, operative leasing or a specialised loan to finance acquisition of a car in 2010.

Bohumil Sák from VWFS told The Slovak Spectator that in 2009 the sale of vehicles financed via leasing and specialised loans decreased due to the state’s so-called car-scrapping bonus scheme, from which leasing was omitted. But, as Sák pointed out, it was still possible to apply for the scrapping bonus when using a specialised loan provided by a leasing company to buy a new car, a possibility which the media often failed to mention. The boom in purchase of cars by private buyers in 2009 was reflected in lower sales to the same customers in 2010; as a result, corporate clients prevailed in 2010, he said.



A sound first four months



The Slovak leasing market’s positive trend from the last months of 2010 has continued in the first third of 2011.

“Positive expectations of the Association of Leasing Companies of Slovakia in terms of the development of the leasing market in Slovakia were met during the first four months of 2011,” Marián Horváth, the head of the committee for statistics and media at ALS, told The Slovak Spectator. The association is sticking to its original prognosis for 2011 – of growth above 10 percent – but expects year-on-year growth to slow in the second half as the comparison basis becomes the improved figures from the latter half of last year.

Horváth pointed to the positive development of the leasing market by highlighting the growing sales of new passenger and commercial vehicles, especially to businesses, and in particular of trucks and trailers, for which year-on-year growth hit triple digits during the first four months of this year. Horváth specified that the penetration of leasing in sales of new vehicles in the corporate sector is about 56 percent and in commercial vehicles above 3.5 tonnes it is as much as 80 percent.

Along with vehicles, companies have also started to acquire new equipment via leasing. According to Horváth, this sector had decreased or stagnated over the last two years, especially among large and medium-sized companies.

According to Stanislav Jaššák from ČSOB Leasing, which led the Slovak leasing market in 2010 based on the value of financing provided, developments in 2011 are in line with the company’s expectations and predictions: the market reports a year-on-year increase and a steep revival in competition.

Keketi, of UniCredit Leasing Slovakia, which is number three in the business based on 2010 results, regards the January-April figures as very positive, adding that his company is meeting its targets. During this period it managed to increase its market share in almost all sectors.

“We register the highest increases in transport vehicles and passenger cars as well as real estate,” said Keketi. “We also assess positively the development in the renewable resources sector, in which we already see and further hope for high dynamics.”

Sák of VWFS expects declining concern among potential private buyers of new cars to lead to more interest in financing new car purchases through leasing or specialised loans.

“2011 is characterised, in Slovakia too, by growing global demand for new cars and thus also an extension in the time it takes for an ordered car to be supplied,” Sák said, adding that because of this, impatient clients who are unused to such a situation may change their mind and choose an alternative, or even a used car. Sák therefore believes the supply of cars from producers is among the factors affecting the leasing market and notes that this is something importers cannot affect.

Horváth, of the ALS, expects that mainly economic factors will continue to affect the development of the Slovak leasing market. These include the post-crisis restart of western European economies, especially that of Germany, which is mirrored in the growth of industrial production and GDP in Slovakia too. Among secondary factors he placed legislation currently in force, as well as new laws in the pipeline, either at the Slovak or European level.

“Frequent changes to legal norms related to financial institutions as well as corporate entities, or excessive protection of certain kinds of clients, prevent leasing companies, as well as other firms, from setting proper mid-term business plans,” said Horváth, adding that the ALS has been trying to lead a discussion with various state bodies about this issue. “Even though we consider protection of consumer rights as important, we think that some steps in this field simultaneously lead to worsening of law enforcement, not only in leasing but also in other, unrelated sectors.”



Comparing Slovakia



“Slovakia did very well when comparing the development of its leasing market in 2010 with neighbouring countries, as well as against countries in western Europe,” Horváth said. “The growth in Slovakia’s leasing market was about 7 percent, comparable with France, Great Britain, Italy or Austria. Higher growth was achieved only in Poland (19 percent), Estonia (17 percent) and Sweden (14 percent).”

With regards to Slovakia’s neighbours, the Czech leasing market grew by less than 4 percent, while Hungary reported a steep fall of as much as 34 percent.


Topic: Finances and Advisory


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