According to Stefan Duller, Hypo’s managing director, who oversees the group’s expansion strategy, South Eastern Europe (SEE) made up close to 80 per cent of the €2.7bn in new business volume for 2007. SEE leasing volumes are expected to sustain that share for this year’s forecast new business volume of €3.3bn.
Last fall, Hypo established a subsidiary in Ukraine, a burgeoning market for vehicle and equipment leasing and one that Hypo predicts by 2012 will become one of the largest operations within the group.
“We are targeting Ukraine in moveable and car leasing and we want to place €220m in deals this year,” Duller said, noting that currently roughly one in 12 of Ukraine’s 48m population had cars.
“There is a tremendous need for more cars but the car leasing market is not developed. Most of the cars are first of all paid in cash and a lot of cars are financed by bank loans, so the leasing portion is very small,” he added.
Indeed, the car segment is an obvious place to begin with for any new entrant into the Ukrainian market. Latest statistics by the International Finance Corp, a unit of the World Bank, showed that automobiles made up 16 per cent of its $3.7bn (€2.3bn) leasing portfolio in 2007. Automobiles were second after rail transport (52 per cent) but double that of freight transport (8 per cent).
There is also a developed secondary market for automobiles, offering another reason why the leasing of cars has taken off much quicker compared to other asset classes.
Two other fast-growing markets for Hypo are Bulgaria and Serbia, Duller said. Bulgaria reported its first set of full-year results for 2007 in which it achieved total volume of €240m, and is on target to end 2008 with over €300m in new business through an expected 6,000 new contracts. The deals in Bulgaria are structured as finance leases, owing to the practical difficulties present in an emerging market.
Among them, Duller explained, was the disadvantageous position of not being a manufacturer-related finance house. Without proper maintenance services at its disposal, coupled with the poor conditions of Bulgarian road infrastructure, Duller said it would be “very difficult to run a profitable” operating lease business as it would not be able to command good residual values at the end of a lease.
Meanwhile, Hypo’s Serbian unit reported a net profit of €19m on the back of a 45 per cent growth in contracts. In 2007, Hypo grabbed the lead in market share for leasing of almost 30 per cent.
However, like other leasing companies in the former Yugoslavian territory, Hypo is lobbying for change in its monetary policy, which has the affect of limiting growth in leasing companies. Companies that offer finance lease products in Serbia are subject to the same regulatory oversight as banks. This means it has to maintain a reserve ratio equivalent to 20 per cent of its finance volume.
“We are very satisfied with the market and we also see huge potential here, but it would be better, of course, not to have to keep the reserve ratio,” he said diplomatically.