The Ukrainian leasing market is experiencing massive growth. Over the past three years, the market has experienced rapid expansion due to the entry of a range of foreign banks – a move that helped increase access to finance and the availability of financial instruments like leasing. This trend should continue and should allow the industry to maintain its current impressive growth rate over the coming years.
“Although leasing in Ukraine is currently in the growth phase, lots of companies are viewing the market as very promising. Based on the experience of our group in other countries in central and eastern Europe, we remain very much convinced that leasing will demonstrate impressive growth rates for years to come. Annual growth rates will overrun the country’s GDP and we expect to see annual growth of around 40-50%,” says Konczewski.
More foreigners, better leasing
Last year, the number of companies that conducted leasing transactions in the country on a regular basis shot up by some 30% compared to 2005, rising from 50 to 65 companies, the International Finance Corporation state in its Ukrainian Leasing Market 2007 Survey.
The IFC stress that this trend is expected to continue as more banks set up leasing companies and awareness of leasing as an alternative financial instrument grows in Ukraine.
“Multinational companies want to be present on all markets, including and especially in CEE countries. Besides, the leasing market in Western countries is already well developed with stable margins, so as a result it’s very difficult for a leasing company to increase its market share there.
“In the early years after the 1998 default, many companies and banks began focusing on the Russian market. After establishing a foothold there, the next natural step for multinationals was to expand their operations into the Ukrainian market, which is characterised by great potential and offers up many business niches to be filled,” says Konczewski.
In terms of funding sources for leasing companies, Konczewski explains that before any multinational financial institution such as the EBRD or IFC grants a credit line to a leasing company, it usually conducts an in-depth feasibility study. “Leasing companies are expected to be organised in a proper way. They should have adequate procedures in place similar to those of Western leasing companies. Transparency in leasing activities is crucial for any evaluation of a leasing company. Sound development strategy, a qualified team and management also play an important role when evaluating a leasing company.
“Only when all these factors are in place will a prospective leasing company have a good chance of receiving attractive funding terms for its leasing activities, which in turn can be passed on to customers,” he explains.
The Ukrainian experience
The portfolio of companies currently engaged in leasing on the Ukrainian market is diverse and covers a wide range of services including everything from car rental, freight and municipal transport, aircraft, manufacturing, agricultural machinery and printing equipment to food processing, computer hardware, medical equipment and telecommunications tools.
UniCredit Leasing’s strategy, as a universal leasing company, is to become a key player on Ukrainian market, providing wide range of products and services for local customers. “Unicredit Leasing already offers financing for a wide range of products, but in particular we finance equipment (including entire production lines) , industrial equipment, construction equipment, transportation equipment, printing facilities and so forth. Vehicle financing leasing is targeted for significant expansion next year. UniCredit Leasing sees also great potential for financing Real Estate projects in Ukraine within the leasing formula,” Konczewski says.
The importance of competition
As more local and foreign leasing companies enter the leasing industry in Ukraine, the competitiveness between players in the near future will become much fiercer, but UniCredit Leasing is used to working in such an environment wherever it operates. “Our competitive advantage is not only the attractive terms we offer, but the quality of service provided as well as the response time; therefore we are very optimistic for the future,” says Konczewski.
“We are happy to work in a competitive market - the more competition on the market, the more attractive the terms and the higher the level of services is offered to the Ukrainian customers,” he stresses.
“Leasing companies will be forced to offer more and more complimentary services in the fields of insurance, transport, and the development of new products. Competition will also shorten the period of time needed to secure lease approval, because customers expect quick approval decision process.
“Companies with properly set up procedures that can offer a faster service will find themselves in a favourable position on the market,” he says, adding also that the margins charged on leasing and the amount of advance payment required are already decreasing.
Stability is better
Konczewski believes that a stabilisation of the political situation will allow a new government to pass the necessary updates in leasing legislation. There is plenty of room for improvement, as Ukraine does not currently offer any tax incentives or other allowances to encourage companies to lease.
A draft law introducing a variety of tax rules that are more beneficial to leasing, including accelerated depreciation for leased production equipment, has been submitted to parliament and is expected to be considered in the near future.
“Stability is always better for business,” says Konczewski, who also confesses that business people primarily concentrates on business topics not politics. “We don’t pay much attention to politics, as we are engaged in developing our business. We see the economical climate in Ukraine is favourable for business, and believe that the leasing business in Ukraine will develop regardless of any political changes. It is obvious that the country has set its course for development, particularly in the economic sphere.” he says.
Banks, M&A and leasing
The intensive merger and acquisition process which the Ukrainian banking system is experiencing could also have knock-on benefits for the leasing business.
“Any consolidation of the banking industry will lead to the consolidation of the refinancing resources for leasing companies. It is also important that bigger banks have a larger customer base. As a consequence of the mergers currently underway in the banking industry, leasing companies owned by banks will also be consolidated, allowing them to serve the higher demands of their customers. The leasing business will therefore become more stable and respectable, as it will effectively become merged into a single entity with much more potential for development,” says Konczewski.
