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

The year for real expansion

The new political and financial environment in Ukraine is throwing up both opportunities and barriers for lessors Despite this, most foreign-owned lessors based in the country expect growth as early as 2011.

By Brendan Malkin

Ukrainian arms of international lessors explain why they are waiting until next year to grow.

 

ING Lease Ukraine factboxThe new political and financial environment in Ukraine is throwing up both opportunities and barriers for lessors. Despite this, most foreign-owned lessors based in the country expect growth as early as 2011.

Volvo Financial Services’ Ukraine operation is a good example of a local company which has gained success since its launch in 1998 from being able to do cross-border financing from Sweden to Ukrainian customers. This business has been supported by a small local operation in Ukraine run by Tanya Kantor.

This ended, however, at the beginning of this year when, according to its country manager, Tanya Kantor, “cross-border financial lease of vehicles [was] suspended in Ukraine due to legislation changes”.

She explained: “New legislation requiring registration of the vehicles with the local authorities only in the lessor’s name has been introduced. This requirement cannot be met when the lessor is a non-resident company.”

Notwithstanding this, Kantor is determined to keep doing business, and maintains a positive outlook for the future.

“Our investments plans are in line with our sister product companies’ strategies for Ukraine. We are looking forward to new opportunities and most likely they will start to materialize as early as in 2011,” she said.

Furthermore, with the worst of the recession having lifted from Ukraine, she is currently in the “process of launching [further] local operations”.

Still, for her business to reach the heady levels it did prior to the recession will not be easy. Lease penetration reached up to 60% between 2005 and 2008. Also, in 2007 alone her business tripled its new business volumes, a feat which was driven, according to Kantor, by an “economy that needed investments to renovate its fixed assets”.

“Customer financing solutions – in particular leasing and related services – provide a competitive advantage for the Volvo Group product companies and dealers,” she said.

Another barrier to growth is the sheer extent to which her business, like most others in Ukraine, was hit by the recession. During this period, Kantor said, lease penetration fell to 10% “when our risk appetites were very limited and the majority of the deals were cash”.

Furthermore, Kantor is quick to highlight the general difficulties of doing business in Ukraine which, she said, include the existence of an unstable political, tax and economic environment, and high levels of bureaucracy and corruption.

 

New opportunities

Meanwhile, for the Ukrainian subsidiary of Russia’s Alfa-Bank, the post-recession environment is offering fresh opportunities, particularly in car leasing.

Demand, however, is unlikely to reach pre-recession levels. Banks today are also far more cautious about who they lend to. Nonetheless, car leasing could still prove to be lucrative business in a country in which, according to Alfa-Bank’s head of retail, having a car is a central part of one’s “lifestyle”.

Other foreign-owned lessors in Ukraine are generally optimistic about the future of their businesses.

A presentation by UniCredit Leasing at the Ukrainian Union of Lessors’ conference last month stated that “Romania and Ukraine are very attractive in terms of market growth potential”, although this needed to be balanced with the fact that “this is compensated by their small absolute market size”.

UniCredit Lease also made clear that, with Ukraine’s lease outstandings as a percentage of GDP in 2009 at less than 5%, the country still possesses a “huge potential” for growth.

Foreign investors, the company added, will also gain confidence to invest on the back of IMF loans which are expected to total $20bn over the next two to three years. Equally, UniCredit  believes, this might “give the [new pro-Russian] government a cushion to implement unpopular reforms”.

To succeed, however, lenders will need to be more cautious, particularly given the fact that Ukraine’s bad debt levels soared to the highest of all CEE countries during the banking crisis. Ukraine is most at risk, along with Bulgaria and Hungary, from pressure on local markets caused by its relatively high debt levels.

 

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