Leasing is focused on transport and agriculture
The Ukrainian leasing market, up until the invasion by Russia in early February this year, was growing in Eastern Europe, albeit from a low base relative to its peers. A report by Eugene Gerden and Alejandro Gonzalez.
Since 2014, when Russia seized Crimea and backed separatists in the Donbas region, the leasing market has been growing, yet somewhat tempered by the government-backed Covid economic lockdowns, according to industry observers.
“Ukraine was the only growing leasing sector in Eastern Europe in 2020. The growth is from a low base and leasing penetration is still lower than for its peers. By the end of 2020, the sector recovered to pre-2014 lease book volumes in Euro terms and we expect that to continue,” Fitch Ratings said in a statement dated 21 December 2021.
Today, the market waits to see what toll the current conflict will have on the country and how that will affect economic activity in one of Eastern Europe’s largest nations.
Like elsewhere in Eastern Europe, the market for leasing services in Ukraine is quite shallow, with bank credit facilities still the dominant method for financing equipment.
Operational leasing, where the lessor retains the risk and rewards from ownership of the asset, is tiny, while finance leasing, where the risk and rewards of ownership of an asset are transferred from the lessor to the lessee, is mostly in the hands of Ukraine’s large commercial banks, although not typically via their balance sheets but through bank-owned companies or captive lessors with ties to banks. Independent leasing providers also play a role in this market, although their size is not large enough to warrant access to international markets.
Maryna Masich, director of the Ukrainian Union of Lessors (UUL), interviewed before the recent conflict began, said that 2021 was a very successful year for the Ukrainian leasing sector. “While the official results of the sector for 2021 are not available, as we are still waiting them from regulators, we see good dynamics for three quarters of the last year. According to our estimates, in 2021 the market reached the level of 35.3bn Ukrainian hryvnia (UAH), [€880m at the time of going to press], which is 65% more than a year earlier. Such growth significantly exceeds the growth rates of the country’s economy in general and many of its sectors in particular."
According to Masich, in dollar terms, the market also reached the highest level in eight years. The total value of the leasing portfolio in the Ukrainian market also grew and amounted to UAH29.6bn, which is 27% higher on a year-on-year basis. Most analysts believe one of the reasons for such huge growth is due to pent-up demand in 2020, as a result of Covid.
These results are in stark contrast to the 2020 figures, during which the leasing market fell by 3.8% against a general decline of the Ukrainian economy of 4.2%, according to official data from the UUL and some open market statistics, which suggest the pandemic had relatively little effect on the industry at that stage. This may be a result of the fact that Ukrainian banks, many of which have leasing divisions, have been focusing more on their core business activities since the start of the pandemic.
Leasing business in Ukraine has predominantly focused on the transport and agricultural machinery sectors and although both of these have relatively well-developed markets in the country both showed a significant increase in business in 2021. For example, the number of leasing agreements for passenger transport increased by 49%, and for freight transport by 75% in 2021, on a year-on-year basis. Even more impressive, self-propelled agricultural machinery saw rises of +87% in the same period.
Despite a complex economic situation in Ukraine in 2021, the range of local leasing companies significantly expanded and the market took on new types of leasing business for example, from solar power plants to drones for agricultural and fieldwork.
While Maryna Masich was upbeat about the sector’s prospects in 2022 when interviewed before the Russian military invasion, the situation is a lot more difficult to predict now. At the time of going to press 900,000 Ukrainians had reportedly fled from the fighting, including Ms Masich.
Top 10 Ukraine leasing companies by portfolio size at the beginning of 2022: OTP Leasing, TAS Group, incl., ULF-Finance, Tascombank, Alpha Leasing Ukraine, Ukrgasbank, AVIS Ukraine, FUIB (First Ukrainian International Bank), Kredobank, Caterpillar Financial Ukraine.