The Turkish leasing market is
recovering after regulatory intervention and the financial crisis
dealt a double blow to the sector. Mark Wilding
reports.
Go deeper with GlobalData
Figures from the Turkish leasing
market indicate a radical revival. The sector expanded by 45% in
2010, to a total volume of TRY4.8bn (€2.18bn).
Although still below 2008 levels,
and a long way from its 2007 peak, the market is starting to focus
on opportunities, rather than mere survival. Plenty of these appear
to be on the way, with regulatory changes anticipated that will
mean a whole range of new leasing products suddenly becoming a
possibility.
The outlook was not nearly as
positive two years ago. Every market suffered from the financial
crisis, but few were dealt such a dramatic double blow as Turkey.
For many years, the country’s financial leasing market had enjoyed
special VAT treatment, paying only 1% on almost all goods compared
to the national standard rate of 18%.
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By GlobalDataSuccessful
lobbying
Only nine months before the collapse of Lehman Brothers,
legislation passed by the Turkish government removed this
treatment, and prompted a market collapse of 51% compared to the
previous year.
Turkey’s leasing association,
Fider, successfully lobbied the government for a compromise and
negotiated a reduction to 8% for certain items, including
agricultural machinery, which represents a major proportion of the
market. Leasing saw a partial uplift, and the worst effects of the
VAT increase were mitigated.
Just as the market thought calamity
had been avoided, then came the financial crisis. The combination
of a tax increase and global markets panicking had a disastrous
effect on Turkey’s financial leasing market.
A heavy reliance on construction
and manufacturing meant the decline was severe, even when compared
to other market sectors. After six years of consecutive growth,
reaching TRY12.4bn in 2007, the market contracted to TRY3.3bn in
2009 – a drop of 73.4%.
However, now, things have improved
considerably. In 2009, the country’s economy contracted by 4.6%,
but bounced back in 2010 with growth of more than 7%. This trend is
expected to continue into 2011, albeit at a slower pace.
Financial institutions are also
hopeful that the country will see its credit ratings upgraded,
further improving the economic outlook.
The recovery was driven in part by
sustained low interest rates, which stayed stable at between 6.5%
and 7% during 2010, after falling throughout the course of the
previous year from 14% in January 2009 and a high of 16.75% in
October 2008. Unemployment now also appears to be falling. After
hitting 14.5% at the start of 2010, it returned to 11.4% at the end
of the year.
A&T Leasing treasury manager
Cem Cinar says: “As economies emerge from the recent crisis, a
macroeconomic business environment characterised by low rates of
inflation is creating a climate of confidence that will encourage
further investment.
“In such an environment, the demand
for leasing products and services can only increase and that in
turn will have a leveraging effect on our sector.”
Most asset classes in the financial
leasing market have remained stable. There have been no dramatic
shifts in the way the market is split between asset classes,
although some have seen greater growth than others.
Largest leasing
market
Turkey’s largest leasing market is
manufacturing machinery, accounting for 28% of volume and a total
size of TRY1.3bn. This was up on 2009’s figure of TRY959m, although
as a%age of market share, the class remained stable compared to the
29% it represented in 2009.
Construction equipment, although
slightly below manufacturing in terms of overall market share, did
very well based on the year-on-year increase in volume. The
purchase cost of construction equipment leased in 2010 was TRY1.1bn
– an increase of 93.53% on 2009. The asset represented 23% of the
total market volume in 2010, compared to 17.5% in 2009.
The surprise performer has been the
textile machinery asset class, which almost doubled its market
share from 3.13% in 2009 to 6.12% in 2010. The purchase cost of
textile machinery leased in 2010 totalled TRY 296.5m compared to
TRY 104.9m the previous year, an increase of 183%.
The transaction volume of aircraft
declined by 81% – the largest fall in volume of any asset class.
However, this was attributed to a large transaction that took place
in 2009 and is not expected to be repeated. Another poor-performing
asset class year-on-year was hotel equipment. The purchase cost of
assets leased remained at a similar level, but its%age of market
share fell from 3.08% to 2.22%.
In addition to several well
performing asset classes, legislative changes working their way
through parliament look likely to provide a welcome boost to the
leasing market. After the blow dealt by the increase in VAT, the
financial leasing sector in Turkey has been due some good
regulatory news.
This could come in the form of a
draft law on Financial Leasing, Factoring and Finance Companies,
which is widely expected to become reality in 2012.
The law will create a raft of
opportunities for leasing companies, allowing a range of new
products to be offered and creating opportunities for growth
through diversification.
SME
opportunity
As well as widening the range of
goods that can be subject to leasing agreements, the legislation
will allow operating leasing, sub-leasing, software leasing and
sale-and-leaseback, creating new market sectors.
Many of Turkey’s leasing companies
are well underway with preparations to start offering these
products in the expectation that the law will change.
Operating leasing is likely to
become a boom area once the legislation has been passed, according
to Dogus Karaca, credit and finance manager at MAN Financial
Services.
The market is already attracting
new entrants who have recognised the potential opportunities and
want a piece of the action. Asset finance software provider White
Clarke Group announced its intention to enter Turkey in August 2009
and will celebrate its first anniversary in the country in May
2011. The company is represented in Istanbul by country manager
Nazli Civelek.
White Clarke Group’s first year has
been successful and the firm is looking to expand its operations in
the country, says Civelek.
She says: “We are already widely
known in the Turkish marketplace, enjoy close relationships with
the important players in the sector and we are pursuing several
blue-chip prospects. We are getting ready to introduce our
non-tangible products such as consultancy services, adapted to the
Turkish marketplace.”
Civelek notes that although the
leasing legislation may not be passed until 2012, more good news
may be coming from the government.
After raising the level of VAT to
18% at the end of 2007, the government is reported to be exploring
ways of encouraging the country’s large SME sector. It is also
thought to be considering reducing VAT to below 5% in some
areas.
The move would go some way to
reversing the negative effects felt after the VAT rise at the end
of 2007.
German-based Grenke Leasing is
continuing its rapid expansion in Europe with a new office in
Turkey. Uwe Hack, deputy chairman of Grenke Leasing, explains that
the large SME market was a major factor in the decision to enter
Turkey.
Hack says: “The biggest opportunity
is in the SME segment as 95% of the companies in Turkey are
SMEs.
“These companies need a serious
financial partner, which can assist them in their needs while they
expand their business. We are familiar with their financial
challenges, and have created tailor-made solutions for their
benefit.”
He adds that there are
opportunities for new entrants to the market who can identify gaps
in existing provision, and believes the SME market isn’t yet
adequately provided for.
“SMEs generally feel reluctant
about leasing as in Turkey the time between the inquiry and the
confirmation of the contract usually takes too long,” Hack
says.
“This is a serious barrier to entry
for most of our competitors.”
Garanti Leasing is Turkey’s largest
leasing company, with 19.6% of market share, and a major player in
the vendor finance market. Cem Surmen, senior vice-president and
head of financial institutions at Garanti Leasing, agrees there is
plenty of room for growth in the SME market.
Surmen says: “The number of SMEs
utilising leasing is still low compared with the total number of
SME type companies in the country.
“Thus, there is very big potential
for leasing in Turkey with both SME and corporate segment clients.
The penetration ratio of 2.7% of leasing in Turkey compared to
15%-20% in major European countries is the perfect evidence for
this.”
Hakan Gulelce, secretary general of
the Turkish leasing association Fider, concurs with the need to
target SMEs.
Gulelce says: “It is a substantial
opportunity to manage growth with many transactions of a small
amount provided for small-sized enterprises – spreading risk across
a high number of customers.”
In Gulelce’s view, the green
technology industry is also likely to be an area of opportunity for
international investors.
“The financing of the renewable
energy sector is a new and in-depth field for the leasing sector,”
he says.
“This kind of leasing transaction
could be financed with special loans provided by international
credit institutions. Since the energy transactions involve big
amounts and their commercial risks are low, the effects towards
sector growth can be seen immediately.”
Turkey is still on the road to
recovery after the global economic crisis. The financial leasing
sector was hit harder than most, and the blow from the VAT increase
that preceded it created the conditions for the sector to enter a
downward spiral.
However, not only has the descent
been halted, but progress on the steep climb back up has been
swift.
Improving economic conditions look
likely to be accompanied by legislation that will provide a welcome
boost to the leasing sector, with growth potential from new
markets.
Estimates for Turkey’s growth are
extremely positive. Gulelce believes that the industry will grow by
30% this year bringing the total market size to TRY6.37bn. With the
new leasing law thought to come into effect in 2012, it is expected
to result in a 25% increase in transaction volume across the
sector.
Just as economic confidence and regulation provided the
conditions for the downturn, the same combination could now be a
cause for celebration.
See also:
Major player returns to form in
2010
