Russia's Leasing Market in a European Context

UnknownNikita Mashkov, Analyst, Russian Association of Leasing Companies
Each year leasing in Russia strengthens its position and the last year was no exception. According to research by the Russian association of leasing companies, in 2007 the leasing market has shown unprecedented growth, more than in two times in comparison with 2006. The volume of new business has grown by 15.1 percent to 35.4 billion dollars.

Based on 2007 results, Russia shares the fifth position with Spain in volume of new business among European countries, being closer to leaders such as Britain, Germany, Italy, and France. Thus the growth rate of the Russian leasing market considerably surpassed not only the above-stated countries, but also average figures across Europe. In 2007, the rate of market growth of leasing in Russia was 102.44 percent. For comparison, the average indicator across Europe was 12.91 percent.

The current situation could remain unnoticed by the European leasing community. Western leasing companies as well as financial groups have started to pay attention to the Russian leasing market.

In fact, representatives of European leasing companies came to study the current situation on the Russian market and to define promotion strategy within it. Some companies have already had positive experiences on the Eastern European financial markets and consider Russia as a continuation of movement towards the East.

Comparing the Russian and European structure of leasing markets, it is possible to highlight, that Russia has a very high share of leasing in railway transportation, airplanes and vessels — 26.6 percent. The average similar parameter in Europe reaches 8.8 percent. The reason for such a significant difference in figures is the program of OAO "RZhD" of railway transport substitution by means of leasing and also various state transport infrastructure development programs.

At the same time, the share of car leasing in Russia has been less than the European average. The share of leasing in passenger transport in Europe is about 30 percent, and in commercial transport (lorries, special vehicles, buses) — 21 percent. In Russia, these figures are 11 percent and 15 percent, respectively. However, taking into account the high rates of motor transport market growth in Russia, it is possible to say that the potential of the given segments is huge. Significant volumes of passenger motor transport leasing in Europe are caused by the presence of leasing for physical persons and development programs of motor transport leasing for companies and governmental agencies. For instance, several years ago in Germany all service cars deliveries for the armed forces began to be carried out by legislative order on leasing conditions.

The situation on the real estate leasing market in Russia and Europe is also different. This segment is practically not developed in Russia because of problems in domestic legislation connected with purchase questions and registration of ground area. While in Europe, leasing transactions of real estate are about 20 percent. It must be stressed that the structure of this market includes not only offices, warehouses and industrial constructions, but also tourist objects: resorts and rest houses.

It is necessary to pay attention to distinctions in the segment of computer technology leasing. Only 0.5 percent of transactions in Russia are connected with the IT sector. In Europe, this parameter reaches 8 percent, however it is not homogeneous throughout the countries. The main part of IT-leasing transactions is carried out in Northern Europe. Thus, some European countries, e.g. Poland as well as Russia face purchase problems in software leasing which at cost can exceed the price of "hardware" considerably. At the same time, in some countries, even in "the New Europe" such as Romania, this question is solved positively.

The equipment segment that includes a range of comprehensive products has the same market shares both in Europe and in Russia approximately 25 percent of leasing market.

In conclusion, it is significant to point out that the potential of the Russian market is huge. If comparing the European and Russian leasing markets on such parameters as a share of leasing in the capital investments and a share of leasing in GDP, it is possible to see the following: in Europe and Russia the amount of capital investment financed by leasing is 21 percent and 17.1 percent, respectively. The share of leasing in GDP in Russia and in Europe is 3 percent and 2.7 percent, respectively.

To sum up, it can be concluded that in the nearest future Russia will be in the top three in the share of new business.