Austria, Poland and Germany
On pages 18-20 we analyse the latest financials of four
European countries. Not all are doing as well as
Romania
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ROMANIA
Europe’s latest flame
Post EU accession, leasing in Romania is rocketing
Despite a lack of credit checking in Romania, and the insecurity
and comparative smallness of the marketplace, the country’s growth
volumes far exceed even the most liberal of estimates. Figures,
released exclusively to Leasing Life, show an increase of 260 per
cent in total new leasing volumes between March 2005 (€391.2m) and
March 2007 (€1.03bn).
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By GlobalDataIn the three months following March, in the wake of the
country’s accession to the European Community, the market doubled
in size. As of June 30 2007, total financed assets by both ASLR
(Asociatia Societatilor de Leasing of Romania) and ALB (The Leasing
and Non Banking financial services Association) reached €2.077bn,
and the total number of signed leasing contracts for the same
period was €72, 370m (CHECKING).
The value of assets leased during H1 2007 in the entire of the
Romanian leasing market, over and above assets leased by the
associations’ members, totaled €2.17bn, compared to €2.2bn for 2006
as a whole.
Overall, the Romanian leasing market grew by 46 per cent between
June 30 2006 and June 30 2007.
At the end of H1 2007, 22 per cent (€454m) was represented by
industrial equipment, 7 per cent (€149m) by real estate, and 71 per
cent (€1.473m) by the transport sector. In 2005 the latter
dominated the market with an 83 per cent share. This shows how
equipment financing is growing compared to vehicle leasing, due to
increasing demand for the financing of infrastructure and
machinery.
Industrial equipment financing is dominated by the construction
field (66 per cent), followed by industry equipment (20 per cent),
medical equipment (7 per cent), IT & software (4 per cent) and
agricultural equipment (3 per cent).
However, Adriana Ahciarliu, secretary general of the ALB, said
that while the vehicle leasing market is decreasing in terms of
percentage, it is increasing in terms of real volumes.
Unsurprisingly, the biggest shift in Romanian leasing so far in
2007 has been the growth in real estate, increasing from 3 per cent
of the market in March 2006, to 9 per cent for Q1 2007. Considering
the previously low base rate of real estate in Romania, and the
willingness by property specialists to shop around new deals in the
context of an overworked western real estate market, this upturn is
hardly surprising.
The banks are driving this growth. At year end 2006 they held a
91 per cent share of the real estate leasing market, a 50 per cent
market share of the vehicle leasing market (against 29 per cent and
21 per cent respectively for captives and independent lessors), and
an 83 per cent market share of Romania’s equipment leasing market.
While banks had a 56 per cent market share in March 2005, come June
2007 they had a an overall 65 per cent share, compared to
independent companies with 26 per cent share and captives with 9
per cent share.
Romania’s GDP growth of over 5.7 per cent for year-end September
1 2007 undoubtedly filtered down to the country’s leasing market.
According to the Romanian Leasing Association (ASLR), leasing is
considered a complementary financial product, and represents over 3
per cent of investment, a figure which illustrates that “leasing
became a medium-term financing source capable of supporting the
development of different sectors of the national economy at
competitive financing costs”.
In 2006, financial leasing represented 3 per cent of Romania’s
GDP, compared to 2 per cent in 2005, but Ahciarliu expects it to
increase to 4 per cent by year end 2007.
With leasing growing at a rate of about 45 to 50 per cent
year-on-year, its penetration rate in terms of GDP and in terms of
equipment investment is expected to grow rapidly, Ahciarliu
says.
AUSTRIA
Reaching critical mass
Companies doing leasing in Austria have entered a slump, but
their foreign subsidiaries are thriving
Despite being a very mature leasing market, with high
penetration levels and a developed economic infrastructure,
Austrian leasing companies are unique in that they are more able to
capitalise on the rapid growth and development in the new, emerging
markets of Eastern Europe.
According to Rudolf Fric, managing director of the Austrian
Leasing Association, his country’s leasing market has an enormous
competitive advantage over other Western markets because of its
early steps into the CEE markets. While the leasing market in
Austria is valued at about €6.1bn, with low margins of about 23 to
25 basis points, and an expected growth rate of only 2.5 per cent,
while the foreign subsidiaries of Austrian companies, most of which
do business in the CEE, make up €7bn.
“We expect the growth and profits to come from the CEE. We need
to increase margins in Austria and additional revenues for
activities in CEE countries,” Fric said.
New business in the Austrian leasing market has slowed. It
increased by only 0.7 per cent in 2006 to total €6.1bn, and 2.8 per
cent (€3.2bn) for the first half of 2007, while year-on-year new
business growth in 2005 was 16 per cent.
This mirrors Austria’s economic market growth forecasts.
According to the Oesterreichische Nationalbank (OeNB), Austria’s
real GDP will grow by 3.2 per cent in 2007 and 2.8 per cent in
2008. However, new business in the Austrian leasing subsidiaries
increased by 41 per cent, from €7.8bn in 2005 to €11bn in 2006.
Furthermore, Austria’s outstanding lease volumes for 2006 was
€21.6bn, up only 5.8 per cent from €20.4bn in 2005, compared to a
year-on-year increase of 9 per cent in 2005 from €18.5bn in
2004.
Fric said that the leasing of equipment assets is the only
sector showing considerable growth at 6.8 per cent, compared to
vehicles at 1.8 per cent and real estate at 0.6 per cent for first
half 2007. This compares to year-on-year growth rates of 3.7 per
cent for real estate, 3.8 per cent for equipment and 10.6 per cent
for vehicles in 2006. The share of equipment assets increased from
23.3 per cent in 2006 to 25.6 per cent in H1 2007, while the
vehicle leasing sector’s share decreased from 56.5 per cent in 2006
to 54.6 per cent in H1 2007.
“Basel II will lead to the increase of leasing penetration,
particularly in movables,” said Fric. “We expect a substitutional
affect and a shift from classical investment loans to leasing – we
have already observed that development concerning movables.”
But Fric maintained that leasing is still strong in the car and
trucks sectors, with current penetration rates in fleet management
of 20 per cent expected to go up to 50 per cent in the next five
years. Penetration rates for the general leasing market is
currently at 19.25 per cent, and also shows great growth
potential.
But real estate leasing has seen a drop in new production. In
2006 it comprised 20.2 per cent of the market, and now only has
19.8 per cent share, which Fric says is due to competition with
other real estate financing products: “Real estate leasing in the
Austrian leasing market is so small. We only finance 450 real
estate leasing projects. Therefore we have strong deviations in
comparison from on year to another, because if one big project
happens then we will have a shift in market shares.”
But Fric said that the economic outlook for Austria is strong
for 2007, despite the impact of the sub-prime crisis in the US,
which “only affected a few banks that were involved in financing
sub prime real estate loans.”
The Austrian leasing market is also characterised by a growing
trend in operating leasing, due to the accounting treatment of
leases by the IFRS.
“Since most of the Austrian leasing companies are subsidiaries
of international groups, they are answerable to GAAP and IFRS,
which treats simple financial leasing as a loan. Therefore if
leasing companies want to achieve the positive affects of leasing
and need to keep their balance sheet as low as possible, then it is
necessary to adopt more operating lease contracts,” Fric said.
POLAND
Upping the game
Polish lessors hope soon to be as profitable as their rivals in
western Europe
The Polish Leasing Association, which saw an increase of 65 per
cent in new leasing production in 2006, from €4bn in 2005 to
€5.7bn, is concentrating on promoting leasing as an integral part
of foreign investment.
The head of the Polish Leasing Association, Jan Jakubowski,
said: “At this moment the main area of interest for the industry is
to find a place for leasing in the European Funds that are going to
take part in investments in Poland.”
The current penetration rate in Poland, which refers to the
percentage of leasing in all investment types, is 11 per cent. But
Jakubowski hopes this will increase to the same rates as seen in
other countries of relative size, such as Spain and France.
“Poland, as a new EU country, has a lot of money coming in from
the EU to invest in the development of infrastructure, and we are
working in a position to be in that line of investment,” Jakubowski
said. “We want the leasing industry to be a part of that
infrastructure growth and the development of companies.”
This appears to be very possible, as leasing in 2006 grew by 33
per cent on 2005 and for the first half of 2007, the leasing of
movables and real estate rose by a combined 70 per cent.
Equipment, which encompasses road transport, machinery &
industrial equipment, computers & business machines, and ships,
rail and aircraft, reached almost €5.3bn (PLN 20bn) in 2006, up
from €3.6bn (PLN 13.5bn) in 2005. Real estate leasing reached
almost €531m (PLN 2bn) in 2006. For H1 2007, equipment leasing
already stood at €3.73bn (PLN 14.04bn), up from €2.3bn (PLN 8.78bn)
in H1 2006, and real estate to €372m (PLN 1.4bn) for H1 2007.
This growth is mostly attributable to the rapid economic
development, as GDP increased by 6 per cent for H1 2007, compared
to an average of 5 per cent between 2002 and 2005. Furthermore,
Jakubowski said: ‘’Demand for leasing is growing as more people see
the advantages of leasing because of the favourable tax positions
in the country.”
Like most of the Central and Eastern European leasing markets,
Polish leasing is characterised by a lot of foreign owned companies
(see chart), which bring in a large share of the industry’s
revenue.
Nevertheless, due to solid and complimentary regulations in tax
and accounting, domestic leasing companies have the right
environment to proliferate.
“When we have meetings with leasing associations from other
countries, it is clear that we have good developed regulations and
good deduction possibilities when it comes to taxation,” Jakubowski
said.
Although vehicles still account for the largest share of the
Polish leasing market (67.1 per cent of the equipment sector for H1
2007, compared to 61.9 per cent in 2006) Jakubowski said that real
estate leasing will see the greatest increase in volume in coming
years because of a boom in the Polish housing market. Jakubowski
sites ING Lease, which concentrates primarily on this sector and
grew by 600 per cent, as an example of the real estate market’s
lucrative nature.
Meanwhile, for H1 2007, road transport’s net value was €2.5bn
(PLN 9.4bn), the majority of which was for passenger cars (36 per
cent), machinery & industrial equipment was €1.1bn (PLN 4bn),
and computers and business machines reached €60m (PLN 225m), most
of which was hardware (88 per cent).
GERMANY
Learning to fly
The enigma is slowly finding its way in contemporary leasing
Germany is an enigma. Although it is of the most mature leasing
markets in Europe, ranked second to Britain, it is still dominated
by small independent, family run leasing companies. Also, despite
the vastness of Germany’s credit business, leasing arms of large
players, such as HVB (which was bought by UniCredit in 2005),
remain comparatively small.
In addition, Germany’s leasing figures are slightly
unusual. According to the Association of German Leasing Companies
(BDL), leasing in Germany profited from the country’s dynamic rate
of economic growth.
However, the number of contracts, and value of contracts, for Q1
2007 are fairly steady on the same period in 2006, increasing by
6.4 per cent from €8.8bn in Q1 2006 to €9.4bn in Q1
2007.
Also, according to BDL: “In 2006 leasing accounted for 19.1 per
cent of all investments in capital goods [up from 18.6 per cent in
2005]. But in 2006, only 23.6 per cent of all investments in
equipment were made by means of leasing agreements, compared with
24.1 percent in 2005.This slight slide is largely attributable to
the below average performance of private leasing
companies.”
Varying fortunes
The leasing of equipment accounted for a hefty 85 per cent of
all leasing investments in Germany, and the volume of new business
acquired through the leasing of equipment reached €46bn in 2006, an
increase of 3.5 per cent on 2005. Road vehicles remained the most
leased items for 2006 and 2007, growing at 12 per cent and 22 per
cent respectively. Cars and estate cars comprised 49 per cent, and
trucks, trailers and buses comprised 15 per cent, all amounting to
a majority share (64 per cent) of all new equipment business
acquired by leasing companies for 2006. Medical technology saw
particular growth year-on-year, although in 2006 this represented
just 1 per cent of all leasing in Germany.
Despite a slowing down in the first quarter of 2007, there was
also particularly strong growth in machinery and IT equipment in
2006.The volume of new business acquired in the computer and office
equipment sector totalled €4bn in 2006, up 15 per cent on the
previous year. But growth within this sector was only 9 per cent
for Q1 2007. Figures for the whole of 2007 may
stall growth as the impact of regulatory changes are felt. These
include a recent increase in value added tax, from 16 to 19 per
cent, and the prospect of further tax changes due to come into
effect at the beginning of 2008.
Already there are signs of a downturn. The number of new
leasing contracts decreased from 311,889 in Q1 2006 to 311,321 in
Q1 2007. Real estate leasing has dipped sharply of late, with new
contracts overall going down 11.4 per cent, particularly in the
business and office sectors where the downturn totalled 87 per
cent. There have also been sizeable slowdowns in the leasing of
retails properties, by 25.1 per cent, and manufacturing plants and
warehouses, by 66.5 per cent. This contrasts sharply with 2006 when
investment in this sector grew year-on-year by 40.2 per cent to
€8.1bn.
Also, the value added tax hike has prompted banks which are
linked to car manufacturers to offer their private customers credit
rather than leasing facilities in the second half of 2006, which,
according to BDL, “has had a significant overall effect on the
leasing of movable assets”. Customers are opting for credit because
it allows them to purchase their vehicles at the old rate of VAT,
and consequently the contribution of private customers to the total
amount of new business acquired remained constant at 11 per
cent.
Furthermore, the country’s leasing business stands at a
crossroads as consolidation continues apace. Last year the volume
of business transacted through Germany’s banks increased 24 per
cent last year. Vendor finance is also on the rise, with 51 per of
all leasing transactions in 2006 being sourced from manufacturers
and retailers. The world is changing, and Germany is slowing
fitting in
