Leasing Market in 2008

The leasing market has grown in 2007 by 2.6 times and totaled $39 billion. It failed to grow even higher due to the liquidity crisis, which also impacted the market balance of power.

The Russian leasing market has gone up in 2007 by 165 percent — the highest acceleration rate in the last seven years. One explanation is that leasing was bridging the gap between a demand for investment resources (three years and more) and the insufficient offer of "long" money by banks. According to Expert RA, new business on the leasing market in 2007 amounted to $39 billion, and the leasing companies' consolidated portfolio — $47 billion.

The chief growth factors are investment demand in an economy on the rise and a continually good margin for the most active players. At the same time, a dramatic increase in the market was not solely preconditioned by the hyper-activity of leasing companies and their clients. The final result was influenced by two additional factors: first, last year saw a 6 percent dollar rate decrease. Second, increased inflation took care of approximately 10 percentage points. "Cleared" market increment totaled 123 percent, which is confirmed by ruble calculations (997 billion rubles in 2007, 400 billion rubles — in 2006) taking inflation into account. Still, it is a very good result to be envied by most other markets.

2007 was characterized by a notable number of deals with natural monopolies, totaling billions rubles (RG Leasing supplies of rolling stock for RZhD, Business Alliance financing energy objects, VTB-Leasing financing energy and oil-extracting equipment, Iliushin Finance Co. financing aircraft purchase). Such deals strengthened the above companies' status on the market. In particular, RG Leasing moved from position 10 to position two in the list of the largest Russian leasing companies. The banking capital presence in the top 10 lessors' list went up too: the number of bank "daughters" increased from five to seven.

Financial insufficiency



Last autumn's compressed liquidity influenced the Russian leasing business in an ambiguous way. On the one hand, banks significantly cut crediting clients (including leasing companies) due to limited resources. Before the liquidity crisis, lessors were actively expanding their cooperation with banks as chief suppliers of long-term funding. According to Dmitry Gorizontov, general director of Petersburg Leasing Company, banks changed their attitude towards lessors. "Leading banks started offering their products to leasing companies. Managers of dependent lessors were even ordered to diversify their liabilities. We seem to see here the influence of two factors: on the one hand, any bank should keep its progressive pace and retain its market share, on the other hand, a truly market-based leasing business should have diversified liabilities."

Since August 2007, interest rates have tended to go higher. "Interest rate growth has already averaged 2 percent. As a result, leasing companies make their services more expensive for the same 2 percent. Some lessors still claim to hold prices for their services intact, but many of them have suspended their deals with small businesses, since banks consider such deals highly risky and provide no funding. Besides, the tendency is to raise the bottom threshold for leasing agreements — sometimes to double it — to cut off "minor deals," says Mikhail Karasev, LeasingPromHold general director. But, on the other hand, rates for loan capital go up everywhere, therefore demand for leasing services has not been going down so far.

The liquidity crisis made enterprises more interested in leasing. Since banks had cut crediting corporations in the second half of 2007, the latter started looking for alternative sources of financing. As a result, demand for leasing services went up to encourage leasing companies for further development. Not all of them followed the trend. Some independent leasing companies in the second half of 2007 had problems attracting resources — the bond market capacity shrunk, credit decisions took longer, crediting volumes decreased. DeltaLeasing general director Oleg Rakitsky says the international financial crisis affected the leasing industry by adding more rigorous demands by creditors to leasing companies. "Consistent access to financial resources came to the forefront. Some companies had to suspend their operations in the fourth quarter of 2007. Access to stable sources of financing with affordable rates will make a serious competitive advantage in 2008."

Non-liquid consequences



Comparing situations at the end of 2006 and 2007 helps to assess the influence of "crisis effect" on the development of the leasing business. The leasing market operates seasonally and deals are mostly signed in the fourth quarter. The market increment in the fourth quarter of 2006 compared with the third was 82.4 percent, a similar indicator in 2007 — only 49.3 percent. In the absence of suppressed liquidity, the Russian leasing market in 2007 might be about $50 billion.

We expect the leasing market to reduce its incremental growth down to 55 to 60 percent in 2008, with the total market value reaching 1.6 trillion rubles. Large state and quasi-state orders of individual nature ("Olympic construction," energy equipment and aircraft), state programs in support of certain branches of industry (agriculture) and "retail" leasing (cars and trucks, construction machinery) will be the main areas of growth.