Turkey has been on the back foot for several years as a result
of swingeing legislation. Will a wave of new laws redress the
balance?
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“Turkey used to be a lessors’ paradise,” says Cuneyt Akpinar,
general manager of EFG Leasing, a subsidiary of the Greek bank EFG
Eurobank Ergasias. Surprisingly, however, one might think if ever
Turkey was a paradise for leasing companies, now is the time.
For months Turkish lessors have been preparing for the coming
into force of a new leasing law that will allow lessors to transact
operational leasing, sale and leaseback and software leasing.
The new law, that will stand alongside the pre-existing
governing legislation, the Financial Leasing Law 1985, is due to
come into force some time in quarter three 2008, and will also
allow foreign companies to lease ships. Alongside this a ‘mortgage
law’ is about to enter the statute books which will entitle lessors
to provide purchase loans to residential homebuyers.
The Turkish leasing market has been looking for some positive
change for some time. They have been somewhat on the back foot
since the early 1990s when VAT on commercial vehicles, which then
represented 65 per cent of the market, was increased to 8 per
cent.
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Also, it is rumoured that one reason for the new leasing laws is
to compensate lessors for the rule change, introduced on December
31 last year, that increased VAT on lease rentals to 18 per cent,
and on net purchase price of equipment (the latter is recoverable).
The Ministry of Finance has since dropped VAT payments on
construction, textile and agricultural machinery, and also medical
equipment, down to 8 per cent.
Lessors estimate that, as a result of thee changes, volumes in
2008 will drop by 30 per cent, and by 15 per cent in 2009. This
compares with increases, in terms of new investment, of 62 per cent
in 2006 and 28 per cent last year. The negative effects of the VAT
hike are also compounded by a law requiring lessors to start paying
20 per cent corporate tax as from next year.
Nonetheless, these burdens, to some extent, will be balanced by
the access lessors will have to operational leasing. Preparations
are already underway for this.
Semsi Gürdenli, head of Yapi Kredi Leasing’s marketing
department, who described the planned introduction of operating
leasing as having “big potential” on his company’s business, said
that in preparation for taking residual value risk on assets it is
planning to hire engineers who will be able to manage assets while
they are on lease.
It is also seeking to draw up contracts with a number of
companies, including Hyundai and Caterpillar, in which they will
agree to take title to assets and receive equipment at the end of
operational leases. Such contracts may also contain remarketing
clauses.
Due to difficulties surrounding the return of large assets, such
as print equipment, says Gürdenli, Yapi Kredi Leasing is likely to
own sign operating leases for particular assets. They are most
likely to include construction and machinery equipment – which
combined represent a quarter of its entire lease portfolio (last
year it signed deals worth $8.2bn) – and medical equipment. Yapi
Kredi Leasing is also in the process of creating inhouse a
purpose-built software system to handle operating leases.
Cuneyt Akpinar, of EFG Leasing, is also busy preparing for the
rule changes. “Currently we are cooperating with certain vendors to
increase our knowledge of this market sector, and also rental
companies,” he remarks.
Asset management
He plans to work with two asset management companies which could
sell assets at the end of lease terms. Also, he expects his company
to benefit from a second hand market with “huge potential”– there
will be no need to sell leased assets outside Turkey for the next
five to 10 years, he predicts. The company is also looking to
upgrade its software, partly in preparation for the law change.
Sectors EFG Leasing is most likely to issue operating leases to are
construction machinery and forklift trucks.
The Turkish leasing arm of ABN AMRO declined to comment on
specific preparations it is making, but its spokesperson says
“leasing companies which have a robust asset knowledge” will be in
the most “favourable positions”.
Some lessors already have such experience, either as a result of
balloon payments, in which lessors take residual values, while
retail funders, particularly in the car market, have experience of
the operational lease sector, and thus have a natural advantage
over those lessors who have only to date signed finance leases.
Some equipment captives have issued operational leases in the past,
while Yesim Bezen, a partner at the Turkish law firm, Bezen &
Partners, says she has signed operational leases for the commercial
aircraft sector.
Most lessors predict that new business from operational leases
will be slow in the short term. The new mortgage laws, according to
several sources, is predicted to grow business by around 10 per
cent during the first two years post implementation. This move to
residential mortgages, also, is in line with Turkish lessors shift
towards selling finance to smaller customers.
This was caused by a 2003 regulation on accounting which barred
tax lease rentals from being tax deductible. As large customers
were less willing to lease as a result of this, lessors turned to
new customers – the SMEs. Leasing to this sector almost quadrupled
between 2003 and 2007.
Leasing in Turkey continues to offer opportunities. It has
considerable room for growth – for instance, only 5 per cent of the
IT hardware market is financed. Foreign companies, which dominate
this market, also continue to set up shop. Last month Raiffeisen
Leasing did so, and HSBC recently applied for a leasing license. It
might not be “paradise”, but then again, it never has
been.
