Operation leasing hots up as small fry face bleak future

Cars have been the big bang for financial leasing companies on the local market. But things are likely to go in another direction. “The leasing market keeps accelerating,” said economist Daniel Daianu, “mostly fueled by the development of construction equipment and specialized equipment leasing.” Top managers of internationally known leasing companies confirmed to Business Review the new trend.
“From a strategic point of view, our goal is to reach a portfolio of 50 percent financed cars and the other 50 percent construction equipment and other equipment such as production streams and medical equipment. The company's development strategy includes, for the next year, to open two other locations in the country,” said Peter Demmer, general manager of Volksbank Leasing.
According to him, in the first half of the year the company portfolio was made up of 72 percent financed cars, 23 percent commercial vehicles and construction equipment and the remaining 5 percent other equipment. The Austrian company signed 5,157 contracts with a financed value of goods of EUR 90 million in Q1, company representatives said.
The top player on the market, BCR Leasing, also witnessed a significant increase in sales on the equipment leasing segment, especially in construction, and the value of financed goods doubled to EUR 64 million.
For BCR Leasing, vehicles represent 28.5 percent of the company portfolio, commercial vehicles 44 percent, general and industrial equipment 22 percent and real estate leasing 5.5 percent.
Due to portfolio reorientation, some companies are considering developing through geographical expansion.
“Presently, 75 percent of our portfolio comes from Bucharest and 25 percent from the rest of the country. Our plan is to switch these percentages, because of the very hard terms of pricing in Bucharest compared with the rest of the country,” John Stamatoudis, general manager of Marfin Leasing, told Business Review.
The firm is owned 99 percent by Marfin Bank Greece and 0.2 percent by five Greek individuals. Marfin Bank and Marfin Leasing are the financial part of Marfin Investment Group, the investment arm of Dubai Financial, one of the five largest investment funds in the world.
Despite its lesser-known name on the market, Marfin Leasing has bold expansion plans. According to the Association of Leasing and Non-Banking Financial Services (ALB), Marfin Leasing currently has 23 branches and is planning to open another seven units this year. The Greek company expects a turnover of EUR 200 million and a market share of 3.5 percent, up from 3.2 percent at the end of last year.

Trends and market expectations
Stamatoudis predicts that the real estate segment in his firm's financial leasing portfolios will report a decrease, but in the same sectors where the real estate market goes down. Market representatives said that as far as the car segment is concerned, no matter how far the market falls, financial leasing will continue to increase on this segment, because of the increasing number of imported cars financed.
Operational leasing is considered by market players to be the new money-making machine, especially on the fleet management side.
“The passenger car business will pass to the banks and operating leasing. Financial leasing will have to manage on the long term only with the real estate and equipment segments, as is the situation in Greece right now. This scenario, I believe, will be more obvious after 2010,” said Stamatoudis.
This trend is also confirmed by Volksbank Leasing GM. “In the future, operational leasing will develop. We have such a project. We are not yet active in this area and a final decision will depend on how the market moves,” said Demmer.
Operational leasing companies already present on the market boast attractive financial results. “We have plans to reach a turnover of more than EUR 4 million by the end of the year, from EUR 2 million last year. We estimate the increase to be generated by a larger client portfolio, but also by an increase in car demand from present clients,” said Effie Valsamaki, GM of DiRENT Romania. According to her, the company expects to report at the end of the year a net profit 30 percent higher than the one reported last year.
According to ALB, this year the values financed on the whole market will be around EUR 5 billion. The net financed value recorded an increase of 16 percent in Q2 compared to Q1 results.
“The leasing market in Romania has reached a peak of development in the last few years and we expect that the growth will smoothly go down – basically the increase will decrease. Every leasing company actually expects this to happen,” said Volksbank Leasing's GM.
Despite still attractive profit rates, players on the market say that newcomers take a chance when considering entering the domestic leasing market.
“It is harder for small companies to get themselves noticed. Because of this some leasing companies might say that the effort is not worth it anymore and close. In my opinion some companies are already thinking this,” said Demmer.
The Marfin Leasing GM goes even further. “Someone who enters now would get more bad loans with cheap pricing, which will develop problems with money collecting. Small financial leasing companies will disappear in time.”

By Dana Ciuraru