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July 1, 2010updated 12 Apr 2017 4:22pm

Dipping a toe in

In the first article of a special report on the Ukrainian leasing market, Brendan Malkin examines the international leasing companies looking to enter the countrys burgeoning market. Foreign leasing companies are once again showing interest in entering the Ukrainian leasing market, as signs emerge that the sector will return to full health next year following its battering over the last two years.

By Brendan Malkin

Ukraine flag

In the first article of a  special report on the Ukrainian leasing market, Brendan Malkin examines the international leasing companies looking to enter the country’s burgeoning market.


Ukrainian market at a glanceForeign leasing companies are once again showing interest in entering the Ukrainian leasing market, as signs emerge that the sector will return to full health next year following its battering over the last two years.

Several foreign banks and a number of commercial vehicle lessors are looking to enter the market. This is partly in response to predictions that the leasing market will begin to grow again at similar levels to those of the finance sector’s boom years between the end of 2004 and mid-2007.

Ukraine’s low overhead costs, as well as its large amounts of untapped business and infrastructure investment opportunities, are attractive to foreign lessors.

Margins in Ukraine are high, reaching up to 8% on car leases and upwards of 30% on other consumer finance deals.

Piotr Kaczmarek, head of Alfa-Bank’s Ukrainian retail arm, said: “Around 37% of bank equity is controlled by foreign banks.

This is still low compared to other markets, such as Poland, where the equivalent figure is around 75%.”

Improving GDP, which grew 3% during the first quarter of 2010 and which is expected to rise by 4% next year, is also helping to bring in more foreign investment.

Furthermore, the shortage of refinancing opportunities available to local Ukrainian lessors – given the need for them to obtain parent company guarantees on such deals and the unwillingness by development banks to take lessors’ credit risks – might also mean foreign lessors will be less threatened by local competition.

Nonetheless, it is likely that the advance by foreign lessors into Ukraine will be slow given the country’s corruption problems, and its challenging legal and tax environments.


Uncertain times

Political uncertainty, partly sparked by the recent arrival of pro-Russian Viktor Yanukovych as the country’s new president, as well as Ukraine’s high external debts (equivalent to 80% of its GDP), are also grounds for caution.

Several sources said that Fraikin, one of the largest commercial vehicle fleet specialists in Europe, is considering launching a Ukraine subsidiary through its Polish arm.

Artur Nowicki, managing director of Fraikin Poland, attended the Ukrainian Union of Lessors’ international conference in Kiev last month.

Another company also scouring the Ukraine market for opportunities is the leasing arm of MAN.

Thomas Linghino, who works for the manufacturing arm’s Russian business, was another attendee at the Ukrainian Union of Lessors’ conference.

Interest from transport companies in Ukraine is not surprising given that potential for growth in the transport market in Ukraine is “huge”, according to Roman Ivanenko, head of the board of the Ukrainian Union of Lessors and also CEO of Euro Leasing Ukraine, a car and truck leasing specialist.

Whereas average transport leasing penetration across Leaseurope member countries totals about 40%, in Ukraine it is 2.7%.

The arrival of new players in the market will also mean more competition for existing players in this segment, including Volvo Financial Services, Scania Financial Services, and ALD Automotive, the operational leasing and fleet management business line of the Société Générale group.

Several local bank-owned leasing companies, including Raiffeisen Leasing Aval and UniCredit Leasing, are also in the transport leasing space.

All of these companies have been adversely affected by high writedown levels during the recession.

On this point, Krzysztof Bielecki, managing director of ING Lease Holdings in the Netherlands, and a specialist in the CEE region, commented: “Over 60% of assets in the CEE are vehicles. Most go to SMEs, and this explains why we lost market share during the banking crisis, as SMEs go bust first.”


Gaining a foothold

Meanwhile, several foreign leasing companies are also looking to enter Ukraine, including Polish lessor BRE Leasing, run by Mieczysław Groszek. BRE Leasing’s ultimate parent, Commerzbank, has a presence in Ukraine through Bank Forum, in which the German banking giant acquired a 60% stake in 2007.

In Poland, BRE Leasing specialises in general asset finance but recently gained a foothold in the rolling stock sector, winning a PLN24m (€5.8m) five-year contract to lease PESA brand model 218MC twin diesel rail buses for the Warmia and Mazury railway line in Poland.

Russian leasing companies are also expected to become more visible in Ukraine at the same time as their parents focus more of their attention on retail opportunities in the country.

State-owned VTB, ranked ninth in Ukraine’s banking sector, is understood to be reinforcing its position in the country’s leasing sector.

Currently VTB Leasing is ranked number one in Ukraine and focuses largely on the leasing of railway wagons for the Ukrainian State Railways.

Commenting on VTB’s ambitions, Peter Oberauer, managing director of Raiffeisen Leasing Aval, said: “State-owned VTB has only small [banking] subsidiaries in Ukraine and understandably want to increase their presence now. This also includes the leasing market.”


Sberbank logoRussian interest

Similarly, Russia’s Sberbank is also believed to be looking to scale up its Ukrainian banking arm, which is currently ranked 24th in Ukraine in terms of total assets.

According to Oberauer: “Sberbank is likely to follow this example through leasing subsidiaries in Ukraine.”

Rumours appeared in the media last month that Moscow-based Sberbank was about to acquire Raiffeisen’s Ukrainian subsidiary.

 “Sberbank has been looking at Raiffeisen Bank Aval for a couple of years already, because this bank is the second-largest in the country, has an extensive customer base in all segments including retail, and a network with over 1,000 branches. Accordingly, it would be an ideal target for Sberbank, which is trying to expand internationally, and in particular in CIS countries,” said Oberauer.

The rumours, however, were dismissed by Raiffeisen. Meanwhile, Oberauer said, Raiffeisen itself is looking to “strengthen its position as the leading banking group in Central & Eastern Europe”, and also “has survived the crisis well and is sufficiently capitalised”.

Another Russian company, Alfa-Bank, which is ranked 10th in Ukraine by total equity capital, is due to start offering car leasing through its retail arm. This is run by Piotr Kaczmarek, who previously headed up Crédit Agricole’s Polish leasing business, Europejski Fundusz Leasingowy.

Whereas before the economic crisis Kaczmarek offered auto loans to customers, he has recently turned to car leasing because it requires “very strict risk approval, high downpayment and tons of documents”, he said.

Another Russian bank with ambitions to expand in Ukraine is state-owned Vnesheconombank. Last year it gained a foothold in Ukraine through its acquisition of Prominvestbank, and is currently Ukraine’s seventh-largest bank.

These new entrants represent the next wave of foreign leasing players in Ukraine following the arrival of international lessors at the crest of the upsurge in the country’s economy in 2006.

During this time SG Equipment Finance, BA-CA Leasing – now UniCredit Leasing – and Immorent, part of Erste Bank, all set up local subsidiaries, while ING Lease did so in 2007.

VAB Leasing, which was founded in 2005 by Dutch company TBIH Financial Services BV, is also in the market. Meanwhile, Hypo-Alpe-Adria Leasing’s Ukraine subsidiary, according to the Austrian bank’s CEO Gottwald Kranebitter, is up for sale (see p24).


Excerpt from articleTaking their time

Due to the impact of the recession on Ukraine’s leasing market, lending by foreign and domestic players almost dwindled to zero during the crisis. The new players are unlikely to enter Ukraine until 2011 at the earliest.

“We are looking forward to new opportunities and most likely they will start to materialise as early as 2011,” said Tanya Kantor, Ukraine country manager for Volvo Financial Services, which has been providing cross-border financing from Sweden to Ukrainian customers since 1998 and is now in the “process of establishing local operations”.

Other attractions of Ukraine for foreign lessors are its cheaper labour costs and the country’s proximity to the European Union.

Notwithstanding this, in recent weeks local English language newspaper, theKyiv Post, reported that Ikea, agricultural giant Cargill and Hewlett Packard had scaled back their investments in Ukraine, citing economic and political reasons.


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