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How to use leasing and what will happen to leasing companies in 2022

Sergey Mikhnevich, photo: Pavel Sadovsky.

What changes have occurred with leasing in the past year? What hinders the development of the industry, and what helps its growth? What can leasing companies, their clients and partners expect in 2022? This was told to the Pro Business portal by the CEO of the group of companies “Activizing” Sergei Mikhnevich.

What is happening with leasing in the world

— Leasing, also known as financial lease, is an important instrument for financing many sectors of the world economy. The penetration of leasing into the GDP of countries does not always depend on the degree of development of the economies of these countries and ranges from a fraction of a percent to several percent. The largest weight of leasing is in the segments of the acquisition of vehicles, machinery and equipment, and real estate.

The dynamics of the development of this type of lease depends on global trends, economic crises and economic upswings. The 2020-2021 pandemic had a predictable negative impact on new business volumes in all countries. But over the past 7 years, leasing around the world has shown a positive trend both in terms of new business and the growth of the leasing portfolio, and in terms of its contribution to global GDP. The most rapidly growing and promising type of leasing is operating leasing, one of the varieties of which is a subscription.

Key Leasing Trends in Belarus

Leasing as an independent segment has reached significant volumes: it provides 1.88% of GDP and its share continues to grow at a fairly rapid pace. According to this indicator, Belarus is in the top 30 states, ahead of many countries, including some with a more developed economy.

According to the Association of Lessors of Belarus, in 2021 the total volume of new business of leasing organizations and banks amounted to 3.2 billion Belarusian rubles (at the average exchange rate of the National Bank for 2021 – 1,082.1 million euros). The increase compared to 2020 was 21.92% (up 13.09% in euro terms).

Traditionally in Belarus, leasing is divided into consumer and investment. Today we will talk in more detail about consumer leasing – that is, the leasing of property transferred to an individual for use for consumer purposes.

Rating data of the Association of Lessors of Belarus.

The main share of leasing for individuals is car leasing, the share of which increased from 54.7% in 2019 to 95.14% in 2021.

Rating data of the Association of Lessors of Belarus.

As for the distribution of lessees by regions of Belarus, Minsk (11,145) and Minsk region (9,966) are in the lead, the least of all leasing transactions with individuals in 2021 were concluded in the Mogilev region (5,147).

Rating data of the Association of Lessors of Belarus.

At the end of 2021, according to the aggregate assessment of the volume of new business and the leasing portfolio, Activleasing became the leader in the consumer leasing segment, its share was 22.3%. ASB-Leasing moved from the first position to the second, the third in the rating is A-Leasing. The total share of the top 3 leasing companies in the volume of new business amounted to 43.7%.

What hinders the development of the leasing market

The main factors hindering the development of leasing in Belarus include the following:

  • High cost and limited credit resources, difficulties in obtaining loans, dependence of leasing organizations on banks.

According to the Association of Lessors, leasing organizations attract 52% of borrowed funds to purchase leased items and, accordingly, are directly dependent on the cost and conditions of resources provided by banks. Currently, resources are expensive and, moreover, the offers of banks are very limited for leasing companies. Banks with “subsidiaries – leasing companies” refuse to provide resources at all.

As for other sources of financing, for example, bonds, we do not yet see prospects for attracting them.

In order to provide credit resources, banks impose increased requirements on collateral, and the leased asset itself is not always sufficient. All this does not allow to increase the volume of lending.

The increase in the cost of credit resources is expected to lead to an increase in lease payments for lessees. Since the objects of leasing are mostly insured, the situation in the insurance market may also affect the growth of leasing payments – insurance companies are faced with a drop in the volume of new business, which caused an increase in insurance rates.

  • Shortage of leasing items in the Belarusian market, growth of their cost and logistical problems.

    Participants of the leasing industry are concerned about the situation in the car market: today, to one degree or another, everyone is experiencing a shortage of cars, postponement or complete uncertainty in terms of delivery (for some brands, they reach up to a year). Another significant risk is that it is difficult to predict how much the price of cars will change in the future.

  • High investment risks.

Traditionally, leasing companies are more loyal to the requirements for the creditworthiness of customers. We evaluate our lessees based on their solvency and take into account the risks depending on the area and branch of activity. Sometimes it is necessary to refuse to provide leasing due to high risks, since certain sectors of the economy are now in a rather difficult situation.

  • Ownership of the object of leasing by the leasing company until the moment of full payments.

This is a less significant factor, since this condition is clear to customers and allows the leasing company to require less evidence of the lessee’s solvency.

What helps the leasing market develop

  • The current regulatory framework.

The legislator, the National Bank, with effective interaction with the Association of Lessors, in recent years have been able to create a progressive legal framework that allows developing this tool for financing the economy.

  • Leasing has advantages over bank lending due to the speed, ease of registration and ease of securing the transaction (and for legal entities also the benefits in terms of taxes).
  • High level of motorization of the countrywhich contributes to an increase in the share of leasing in the vehicle segment.
  • Client-oriented approach.

We are moving towards an experience economy where emotions matter. The client cares about the quality of service and how interested the company is in it. It is important to achieve and exceed the client’s expectations, to give maximum impressions from interaction with the company.

The task of the company is to explain everything to the client in simple words. For many clients, communication with a “good manager” is important, it is important for them to trust, and it is easier to do this in a personalized way. What is important is not the pursuit of momentary profit, but complex work with customer experience.

  • Development of product lines for leasing companiescomplementing them with services such as operating leases and subscriptions.
  • Emergence of new brands on the territory of Belarus.

​​​​​For example, Chinese cars have the potential to increase sales, and with the help of leasing, this growth could become even more significant.

  • Development of e-commerce, delivery services, taxis and carsharing.

​​​​​Most often, it is these companies that consider leasing when updating their transport fleets. In 2021, service companies leased 32.3% of all vehicles, and trading companies – 23.4%.

What’s next for the leasing market?

The industry is in for a turbulent year. At the same time, the need for investment will not disappear even in the current conditions.

The leasing market is closely connected with all economic processes and serves as an alternative source of attracting investments, so it has a chance to increase its share in various segments. The main problem for leasing companies now is finding financing and creating attractive conditions for their clients.

Leasing companies will either have to expand their specialization, or completely reorient themselves in favor of liquid leased items. The specialization will be influenced by the availability of property as a subject of leasing, its sufficient volume, price stability and delivery time.

The survival of leasing organizations depends on several factors. Those who are better provided with their own resources and work in segments that are less subject to changes in the economy will be able to increase their share in the leasing market. The task of the leasing company is to take an important place in the life of the client, to become a service and useful assistant, to offer convenient conditions for financing programs and a simple transaction.

In the current situation, leasing companies must be flexible and prudent, both when working with the existing client base and when negotiating new deals. The risk of growth in receivables is high and this risk needs to be managed. Those companies in which work in this matter is organized at the proper level have more chances of surviving and increasing their market share, even if this market falls.

2022 will be a year of changes: the redistribution of shares between leasing organizations, the adaptation of business processes, the restructuring of relationships with car dealers and suppliers of leasing items, the search for new solutions that are convenient for the end client. Innovative companies that are already working on updating the product line and services and are looking for cheap financial resources will survive.

Data used in the material rating Association of Lessors of Belarus.

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My profession is a journalist, but my hobby for 8 years has been studying Forex investing and trading. During this time, I managed to gain extensive experience in investing and trading cryptocurrencies and double my capital in the Forex market. To be the author of this magazine, the site owners invited me to participate in one of the 2020 trading webinars, and I will try to reveal the most relevant crypto market news for you.

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