FINANCIAL LEASING SECTOR IN SERBIA

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1 BANK SUPERVISION DEPARTMENT FINANCIAL LEASING SECTOR IN SERBIA Second Quarter Report 2016 SEPTEMBER 2016

2 Contents: 1 BASIC INFORMATION ABOUT THE SERBIAN FINANCIAL LEASING SECTOR BALANCE SHEET STRUCTURE Balance sheet Market share STRUCTURE OF INVESTMENT AND ASSET QUALITY Structure of financial lease investment Asset quality PERFORMANCE INDICATORS... 11

4 Second Quarter Report Basic information about the Serbian financial leasing sector 1 At end-q2 2016, as in the previous period, a total of 16 licensed lessors operated in the Serbian financial leasing sector: 1 CA Leasing Srbija 9 Porsche Leasing SCG 2 ERB Leasing a.d. Beograd 10 Procredit Leasing 3 Heta Leasing 11 Raiffeisen Leasing 4 Intesa Leasing 12 S-Leasing 5 LIPAKS 13 Sogelease Srbija 6 NBG Lizing 14 UniCredit Leasing Srbija 7 NLB Leasing 15 VB Leasing 8 Piraeus Leasing 16 Zastava Istrabenz Lizing 1.1 Overview of the basic parameters relevant to the financial leasing sector (number of employees, total balance sheet assets, total capital by residence of the lessor s founder and total amount) Table 1 Overview of basic parameters (in RSD 000, in %, as at 30 June 2016) Ownership structure by Assets Capital Employees owner nationality (residence) Number Amount Share Amount Share Amount Share Lessors in 100% or majority ownership of domestic entities 7 38,633, % 4,815, % % Lessors in 100% or majority ownership of foreign legal entities 8 15,746, % 3,310, % % Lessors owned by a domestic bank in foreign ownership and a foreign legal entity (each holding a 50% stake in capital 1 7,325, % 449, % % Total 16 61,704, % 8,575, % % Source: National Bank of Serbia By residence of the founder, the ownership structure of lessors remained the same as a quarter earlier. As shown in Table 1 Overview of basic parameters, eight lessors were in 100% or majority ownership of foreign legal entities, seven lessors were in 100% or majority ownership of domestic entities (of which six were owned by domestic banks in foreign ownership), while one lessor was jointly owned by a 1 All data contained in the Report are based on reports submitted by lessors to the NBS for Q in accordance with regulations. The accuracy of data in the reports was not subject to on site supervision of the NBS. 1

5 National Bank of Serbia domestic bank in foreign ownership and a foreign legal entity, each holding a 50% stake in the capital of the lessor. Table 2 Lessor ownership structure No Lessor Owner % of ownership 1 CA Leasing Srbija Credit Agricole Bankа Srbija a.d. Novi Sad ERB Leasing a.d. Beograd EFG New Europe Holding b.v, Amsterdam, the Netherlands EFG Eurobank Ergasias s.a, Athens, Greece Еurobank a.d. Beograd Heta Leasing HETA Asset Resolution GmbH, Klagenfurt, Austria Intesa Leasing Banca Intesa a.d. Beograd LIPAKS Mirko Žeželj Zoran Tanasić Sandra Džodić Milorad Milić NBG Lizing National bank of Greece s.a. Athens, Greece NLB Leasing Nova Ljubljanska banka d.d. Ljubljana, Slovenia Piraeus Leasing Piraeus Bank s.a. Athens, Greece Piraeus Bank a.d. Beograd Porsche Leasing SCG Porsche Bank AG, Salzburg, Austria Procredit Leasing ProCredit Bank a.d. Beograd Raiffeisen Leasing 12 S-Leasing Raiffeisen banka a.d. Beograd Raiffeisenbank Leasing International GmbH, Vienna, Austria Steiermarkishe Bank und Sparkassen Aktiengesellschaft, Graz, Austria Еrste Bank a.d. Novi Sad Sogelease Srbija Societe Generale Bank Srbija a.d Beograd UniCredit Leasing Srbija d.o.o. Beograd UniCredit bank Srbija a.d Beograd VB Leasing VB-Leasing International Holding GmbH, Vienna, Austria Zastava Istrabenz Lizing d.o.o. Beograd Istrabenz D.D. Koper, Slovenia JSC Zastava vozila group, Kragujevac undergoing restructuring Source: National Bank of Serbia. 2

6 Second Quarter Report 2016 The classification of lessors by sector of the founder (banking/non-banking sector) has not changed since the establishment of a regulated financial leasing market in Serbia. As before, fourteen lessors were founded by banks, banking group members or other financial institutions, while only two lessors were in majority ownership of nonbanking sector entities. At end-q2, the number of employees in the financial leasing sector was 386, down by 21 from Q1. The number of employees of three lessors increased relative to a quarter earlier, while the number of one lessor s employees dropped by 24. Though data show a decline in employment, we cannot speak of a downward trend at the level of the financial leasing sector, as the drop was not caused by the specificities of the Serbian integral financial leasing market, but rather by the financial situation and business policies of individual lessors. Total balance sheet assets of the financial leasing sector equalled RSD 61.7 bln (rising by 3.4% compared to end-q1). Total capital equalled RSD 8.6 bln (rising by 5.5% compared to end-q1). Interestingly, combined balance sheet assets of four lessors show that their share in the financial leasing market was as much as 55.1%, another four lessors held individual shares of below 10.0%, while individual market shares of the remaining eight lessors were less than 5.0%. All data relating to respective shares in the Serbian financial leasing market, both by total balance sheet assets and by financial lease receivables (portfolio) are presented in the section relating to the Balance Sheet. Chart - 1 Balance sheet total of the leasing sector (as at 30/06/2016 in RSD mln) ERB LEASING AD BEOGRAD, 274 INTESA LEASING DOO BEOGRAD, 9543 NLB LEASING DOO BEOGRAD, 665 PIRAEUS LEASING DOO BEOGRAD, 1106 SOGELEASE SRBIJA DOO BEOGRAD, 8430 ZASTAVA ISTRABENZ LIZING DOO BEOGRAD, 327 VB LEASING DOO BEOGRAD, 4269 PORSCHE LEASING SCG DOO BEOGRAD, 2567 HETA LEASING DOO BEOGRAD, 1793 LIPAKS DOO BEOGRAD, 2003 PROCREDIT LEASING DOO BEOGRAD, 611 UNICREDIT LEASING SRBIJA DOO BEOGRAD, 8636 CA LEASING SRBIJA DOO BEOGRAD, 4558 NBG LIZING DOO BEOGRAD, 4744 S-LEASING DOO BEOGRAD, 4854 RAIFFEISEN LEASING DOO BEOGRAD, 7323 Source: National bank of Serbia 3

7 National Bank of Serbia 2 Balance sheet structure 2.1 Balance sheet On 30 June 2016, balance sheet assets of the leasing sector totalled RSD 61.7 bln, up by 8.6% relative to end-q The largest share of total assets was that of financial lease receivables (88.8%). The absolute amount of these receivables equalled RSD 54.8 bln, which is higher by as much as 9.8% than in Q Compared to Q2 2015, long-term financial investment under fixed assets increased considerably in Q more than forty-nine times, which resulted from the fact that lessors purchased larger amounts of long-term securities issued by the Republic of Serbia and also the fact that they placed their temporarily unengaged funds on term deposit with banks so as to reduce operating risk. Relative to 30 June 2015, current assets decreased by 9.8% as at 30 June It is worth noting that the reduction was mostly driven by a decline in short-term financial assets, despite the increase in cash and cash equivalents by 66.7%. The surge in cash and cash equivalents compared to Q resulted from the early repayment of financial lease assets, which was caused in part by the fact that lessees refinanced their liabilities under lease contracts by using more favourable sources of funding bank loans (with lower interest rates). This increase was also driven by the fact that funds allocated by lessors for the purchase of lease assets remained unengaged, as the lessors plans regarding the amounts of future investment were not realised. At end-q2 2016, the capital of all lessors amounted to RSD 8.6 bln, with a 13.9% share in total balance sheet liabilities. Total capital rose by 9.7% compared to 31 December 2015 and by 21.6% compared to 30 June A conclusion can therefore be drawn that the capital of the financial leasing sector has been continuously growing during the past year, which resulted from the increase in gains and additional paid-in capital by the founders. As at 30 June 2016, long-term liabilities accounted for the largest share of total liabilities 76.9%. Long-term credits from foreign creditors made up the dominant share of long-term liabilities (and a 66.6% share of total liabilities). Incidentally, in the majority of cases, foreign creditors of leasing companies were either their founders or legal entities operating within the same banking group. Total long-term liabilities as at 30 June 2016 were 0.5% lower than on 31 December 2015, while total debt under long-term foreign borrowing declined by 1.4% compared to the same date. Compared to 30 June 2015, total long-term liabilities rose by 2.9%, while liabilities to foreign creditors fell (3.2%). At end-q2 2016, long-term domestic credits held a 10.3% share in total balance sheet liabilities. These credits were 5.7% lower than on 31 December 2015, but considerably higher than on 30 June 2015 by 73.5%. This increase stemmed from new business policies implemented by banking groups that include the lessors and domestic banks creditors of those lessors. According to those policies, domestic banks with majority foreign capital are encouraged to finance other financial institutions within the same banking group. 4

8 Second Quarter Report 2016 The share of short-term liabilities in total liabilities increased from 6.5% at end to 7.9% as at 30 June Short-term domestic credits accounted for the majority of short-term liabilities (6.3%). Total short-term liabilities as at 30 June 2016 equalled RSD 4.9 bln, up by 25.4% compared to 31 December The bulk of assets were foreign currency indexed (89.0%), while the majority of liabilities were foreign currency denominated (67.0%), which is in line with the structure of debt, given the creditors residence. Table 3 Aggregate balance sheet of lessors No ITEM 31 Dec Jun 2016 % growth amount % amount % 30 Jun 16/ 31 Dec 15 ASSETS 60,264, ,704, FIXED ASSETS 53,817, ,860, Property, plant and equipment 303, , Financial lease receivables 52,685, ,808, Long-term financial assets 758, Other fixed assets 71, CURRENT ASSETS 6,446, ,843, Cash and cash equivalents 3,200, ,435, Short-term financial lease receivables 239, , Short-term financial assets 1,859, ,722, Other short-term receivables 280, , Other current assets and deferred tax assets 866, ,142, LIABILITIES 60,264, ,704, CAPITAL 7,818, ,575, Core capital 6,779, ,990, Reserves 40, , Revaluation reserves Net unrealised gains/losses 4, , ,1 1.5 Retained earnings 3,399, ,877, Loss 2,405, ,339, Purchased own shares and stakes

9 National Bank of Serbia Table 3 Aggregate balance sheet of lessors No ITEM 31 Dec Jun 2016 % growth amount % amount % 30 Jun 16/ 31 Dec 15 2 LONG-TERM PROVISIONING AND LIABILITIES 48,538, ,228, Long-term provisions 848, , Long-term liabilities 47,690, ,436, Long-term domestic credits 5,991, ,332, Long-term foreign credits 41,671, ,075, Other long-term liabilities 27, , SHORT-TERM LIABILITIES 3,906, ,899, Short-term financial liabilities 2,731, ,945, Short-term domestic credits 2,677, ,863, Short-term foreign credits Liabilities under interest and other costs of financing 54, , Financial lease liabilities 470, , Other liabilities and deferred tax liabilities Source: National Bank of Serbia 704, , Table 4 Aggregate balance sheet of lessors No ITEM 30 Jun Jun 2016 % growth amount % amount % 30 Jun 16/ 30 Jun 15 ASSETS 56,827, ,704, FIXED ASSETS 50,351, ,860, Property, plant and equipment 320, , Financial lease receivables 49,924, ,808, Long-term financial assets 15, , Other fixed assets 90, CURRENT ASSETS ,843, Cash and cash equivalents 1,460, ,435,

10 Second Quarter Report 2016 Table 4 Aggregate balance sheet of lessors No ITEM 30 Jun Jun 2016 % growth amount % amount % 30 Jun 16/ 30 Jun Short-term financial lease receivables 353, , Short-term financial assets 3,473, ,722, Other short-term receivables 324, , Other current assets and deferred tax assets 846, ,142, LIABILITIES 56,827, ,704, CAPITAL 7,052, ,575, Core capital 6,037, ,990, Reserves 40, , Revaluation reserves Net unrealised gains/losses 6, , Retained earnings 3,255, ,877, Loss 2,287, ,339, Purchased own shares and stakes LONG-TERM PROVISIONING AND LIABILITIES 46,801, ,228, Long-term provisions 687, , Long-term liabilities 46,113, ,436, Long-term domestic credits 3,650, ,332, Long-term foreign credits 42,439, ,075, Other long-term liabilities 24, , SHORT-TERM LIABILITIES 2,974, ,899, Short-term financial liabilities 2,084, ,945, Short-term domestic credits 2,026, ,863, Short-term foreign credits Liabilities under interest and other costs of financing 57, , Financial lease liabilities 271, , Other liabilities and deferred tax liabilities Source: National Bank of Serbia 618, ,

11 Ranking National Bank of Serbia 2.2 Market share For the purpose of monitoring the structure of the financial leasing market and the degree of competition among lessors, calculations were made of individual and cumulative market shares of lessors balance sheet totals, as well as of the Herfindahl- Hirschman Index (HHI). Also, lessors were ranked based on the size of individual market share as determined by the level of receivables from financial leasing (portfolio). Table 5 Market share of lessors by balance sheet assets Lessor Balance sheet assets Share Lessor Balance sheet assets Share 1 Intesa Leasing 9,542, % 9 Porsche Leasing SCG d.o.o. Beograd 2,566, % 2 UniCredit Leasing 8,635, % 10 Lipaks Leasing 2,003, % 3 Sogelease Srbija 8,430, % 11 Heta Leasing 1,793, % 4 Raiffeisen Leasing 7,323, % 12 Piraeus Leasing 1,106, % 5 S-Leasing 4,853, % 13 NLB Leasing 664, % 6 NBG Lizing 4,744, % 14 Procredit Leasing 611, % 7 CA Leasing Srbija 4,558, % 15 Zastava Istrabenz Lizing d.o.o. Beograd 327, % 8 VB Leasing 4,269, % 16 ERB Leasing a.d.beograd 274, % TOTAL 61,704, % Source: National Bank of Serbia. Relative to end-2015, the financial leasing market changed insignificantly. The top four lessors, making up more than half of the entire financial leasing market, kept their positions, while significant changes in the share of lessors in the financial leasing market in terms of balance sheet assets were as follows: - VB Leasing moved from the 5 th position as at end-2015 to the 8 th position, and - Heta Leasing moved from the 9 th position as at end-2015 to the 11 th position. 8

12 Ranking Second Quarter Report 2016 Table 6 Market share of lessors by financial lease receivables (portfolio) Lessor Portfolio Share Lessor Portfolio Share 1 Sogelease Srbija 8,307, % 9 Porsche Leasing SCG d.o.o. Beograd 2,483, % 2 Intesa Leasing 7,874, % 10 Heta Leasing 1,538, % 3 UniCredit Leasing 7,334, % 11 Lipaks Leasing 1,164, % 4 Raiffeisen Leasing 6,975, % 12 Piraeus Leasing 818, % 5 S-Leasing 4,561, % 13 Procredit Leasing 343, % 6 NBG Lizing 4,464, % 14 Zastava Istrabenz Lizing d.o.o. Beograd 251, % 7 CA Leasing Srbija 4,345, % 15 NLB Leasing 154, % 8 VB Leasing 4,109, % 16 ERB Leasing a.d.beograd 79, % TOTAL 54,808, % Source: National Bank of Serbia. The market share of lessors by portfolio also changed slightly: - Sogelease Srbija moved from the 3 rd position to the 1 st position, while - UniCredit moved from the 1 st position to the 3 rd position and - VB Leasing moved from the 5 th position to the 8 th position. Judging by the Herfindahl Hirschman Index, which equalled 1,028.1 on 30 June 2016, the financial leasing market falls into the category of moderately concentrated markets. 2.3 Profit and loss account Total pre-tax profit of all lessors as at 30 June 2016 increased to RSD mln. Of all lessors, only one recorded a negative pre-tax profit (RSD 232 thousand), while all others had a positive pre-tax profit. Profit of the financial leasing sector as at 30 June 2016 was many times higher than in Q (pre-tax profit came at RSD mln as at 30 June 2015), which resulted from higher income and gains, primarily on account of income from impairment of 9

13 National Bank of Serbia assets and exchange rate gains. The financial leasing sector recorded exchange rate gains as at 30 June 2016, whereas on the same date a year earlier it posted considerable exchange rate losses (RSD 72.1 mln). Total income and gains as at 30 June 2016 rose by 39.9% compared to 30 June 2015, while total expenses and losses increased by 19.8%. The most significant category of income was interest income from leasing (as primary income of lessors), with the share of 41.6% in total income as at 30 June 2016, which indicates a slight decrease relative to the same period in 2015, when this share was 62.3%. Net income from impairment of assets had a 38.8% share in total income, followed by income from leasing (e.g. income from the performance of primary activities) 8.0%, other gains and income (income from premiums, subsidies, grants, donations, income from the reversal of long-term provisions, etc.) 5.5%, and net income from exchange rate gains and currency clause effects 1.7%. The share of other categories of income in the structure of total income changed negligibly. Chart 2 - Structure income 7,000,000 6,000,000 TOTAL INCOME 5,000,000 4,000,000 Interest income from leasing 3,000,000 2,000,000 Income from leasing 1,000,000 0 I II III IV I II III IV I II Net income from reversal of asset impairment Source: National bank of Serbia The largest share in the structure of total expenses was held by salaries, compensations and other expenses related to employees (18.4%), followed by interest expenses from leasing transactions (16.6%). Expenses from leasing transactions accounted for 3.8% of total expenses, while depreciation and provisioning made up the smallest share in total expenses (2.2%). Chart 3 - Structure expenses 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 TOTAL EXPENSES Interest expenses from leasing Salaries, compensations and other expenses related to employees Other operating expenses Net expenses from reversal of asset impairment 0-1,000,000 I II III IV I II III IV I II PRE-TAX RESULT -2,000,000 Source: National bank of Serbia 10

14 Second Quarter Report Structure of investment and asset quality 3.1 Structure of financial lease investment As in the previous years, in Q2 2016, most financial lease agreements were concluded with non-financial sector companies (84.2%). At end-q2 2016, the largest shares in financial lease investment by lease asset were retained by the financing of freight vehicles, minibuses and buses with 37.7% and the financing of passenger vehicles with 30.8%. As in the previous periods, the share of other lease assets continued to account for close to or below 10.0%. In this quarter, the most significant share in total financial lease investment was that of transport, warehousing, information and communications 36.2%. Trade also accounted for a significant share with 15.8%, as did manufacturing, mining and water supply with 13.1%. 3.2 Asset quality The value of financial lease receivables (portfolio) as at 30 June 2016 was RSD 54.8 bln, which represents a 4.0% increase relative to end-2015 (RSD 52.7 bln). Compared to 30 June 2015, the value of the portfolio rose by 9.8%. Gross receivables past due equalled RSD 6.3 bln, making up 9.9% of gross financial lease receivables (11.9% at end-2015). The net carrying value of past due receivables was RSD 1.1 bln, with a share in the portfolio of 2.0%, showing a reduction compared to both end-2015 (2.9%) and end-q Net receivables past due were relatively low in relation to the capital of the financial leasing sector as at 30 June 2016 (12.4%). At end-q2 2016, receivables past due more than 90 days made up the largest share of total receivables past due. As at 30 June 2016, these receivables equalled RSD 5.0 bln. They accounted for 8.0% of total gross financial lease receivables (10.0% at end and 12.8% at end-q2 2015). The net carrying value of receivables past due more than 90 days made up 0.8% of the total net portfolio, changing negligibly from end (1.4%) and 30 June 2015 (also 1.4%). Value adjustments of receivables due and not due came at RSD 8.6 bln on 30 June 2016, while their share in total financial lease receivables, gross, was 13.5%, which is a decrease relative to end-2015 (15.5%) and to Q (RSD 11.8 bln accounting for 19.1% of total gross receivables). 4 Performance indicators At end-q2 2016, return on assets (ROA) and return on equity (ROE) increased compared to end-2015 and end-q Relative to 31 December 2015, ROA rose from 0.64% to 2.37%, though this indicator s growth is more prominent in comparison to 30 June 2015 (0.56% at end-q2 2015). ROE was also on an upward path at end-q2 11

15 National Bank of Serbia 2016 when it stood at 17.64%, compared to 5.39% at end-2015 (and 4.87% at end-q2 2015). Net interest margin was 3.87%, staying almost the same as at end-2015 (3.98%). The average lending rate fell slightly at end-q2 2016, to 5.79% (from 6.17% at end- 2015), as did the deposit rate, equalling 2.03% at end-q (2.22% at end-2015). A somewhat sharper decline in the average lending rate (that should have made financial leasing more attractive to potential lessees) than in the average deposit rate led to a small decrease in net interest margin at end-q compared to end

FINANCIAL LEASING SECTOR IN SERBIA

BANK SUPERVISION DEPARTMENT FINANCIAL LEASING SECTOR IN SERBIA First Quarter Report 2017 June 2017 Contents: 1 Basic information about the Serbian financial leasing sector... 2 1.1 Overview of the basic