FINANCIAL LEASING SUPERVISION

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1 BANK SUPERVISION DEPARTMENT DIVISION FOR FINANCIAL LEASING SUPERVISION FINANCIAL LEASING SUPERVISION Third Quarter Report 2013 November 2013

2 Financial Leasing Supervision Contents: 1. Market participants Number of lessors Number of employees Ownership structure... 3 Domestic vs. foreign ownership... 3 Financial vs. non-financial sector Balance sheet structure Balance sheet Balance sheet total of lessors and banks Market share Profit and loss account Structure of investments and assets quality Lessors Lease asset Investment structure by sector Assets quality Performance indicators Sources of financing

3 National Bank of Serbia 1. Market participants 1.1. Number of lessors At end-q3 2013, the list of licensed lessors included: 1. CA Leasing Srbija 9. Porsche Leasing SCG 2. ERB Leasing a.d. 10. Procredit Leasing 3. Hypo Alpe-Adria-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 1.2. Number of employees After rising steadily from year to year, in 2009 total employment in the financial leasing sector recorded a decline. The downward trend continued throughout During 2011, the number of employees in the financial leasing sector ranged from 471 to 485, and ended the year at 482. The number of employees began to decline again in 2012 and reached 426 by the year-end. In the course of 2013, the number of employees was rising to reach 433 as at 30 September At end-q3 2013, the average number of employees per lessor equalled around 27. Таble 1 Number of employees in the financial leasing sector Date No. of employees 31/12/ /12/ /12/ /12/ /12/ /12/ /09/ Source: National Bank of Serbia. 2

4 Financial Leasing Supervision 1.3. Ownership structure Domestic vs. foreign ownership - Ten lessors were in 100% or majority ownership of foreign legal entities; - Five lessors were in 100% or majority ownership of domestic entities (of which four were owned by domestic banks with foreign capital); - One lessor was jointly owned by a domestic bank with foreign capital share and a foreign legal entity, each holding a 50% capital stake in the lessor. Financial vs. non-financial sector - Fourteen lessors were founded by banks, banking group members or other financial institutions. Porsche Bank AG, Salzburg, Austria, founder of Porsche Leasing SCG, is specialised in services of financing products from the sales programme of Porsche group. - Two lessors (LIPAKS d.o.o. Belgrade and Zastava Istrabenz Lizing d.o.o. ) were founded by non-financial sector entities. Table 2 Lessor ownership structure No. Lessor Ownership % of ownership 1. CA Leasing Srbija 2. ERB Leasing a.d Hypo Alpe-Adria-Leasing d.o.o. Intesa Leasing 5. LIPAKS Credit Agricole Bankа Srbija a.d. Novi Sad 100 EFG New Europe Holding b.v, Amsterdam, Holland EFG Eurobank Ergasias s.a, Athens, Greece Еurobank EFG a.d HETA Asset Resolution GmbH, Klagenfurt, Austria 100 Banca Intesa a.d. 100 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 9. Porsche Leasing SCG 10. Procredit Leasing 11. Raiffeisen Leasing d.o.o. Piraeus Bank s.a. Athens, Greece Piraeus Bank a.d Porsche Bank AG, Salzburg, Austria 100 ProCredit Bank a.d. 100 Raiffeisen banka a.d. Raiffeisenbank Leasing International GmbH, Vienna, Austria

5 National Bank of Serbia Table 2 Lessor ownership structure No. Lessor Ownership % of ownership 12. S-Leasing Steiermarkishe Bank und Sparkassen Aktiengesellschaft, Graz, Austria Еrste Group Immorent International Holding GmbH, Vienna, Austria Sogelease Srbija Societe Generale Bankа Srbija a.d UniCredit Leasing Srbija d.o.o. 15. VB Leasing 16. Zastava Istrabenz Lizing d.o.o. UniCredit Leasing S.P.A, Bologna, Italy 100 VB-Leasing International Holding GmbH, Vienna, Austria Istrabenz D.D. Koper, Slovenia AD for holding, consulting and management, Zastava vozila group, Kragujevac undergoing restructuring Source: National Bank of Serbia. 2. Balance sheet structure 2.1. Balance sheet On 30 September 2013, balance sheet assets of the leasing sector totalled RSD 68.2 bln, down by 5.2% relative to 31 December 2012 (RSD 72.0 bln). The bulk of assets was foreign currency clause indexed (83.7%), while most liabilities were foreign currency denominated (81.0%). The largest share of total assets was that of financial lease receivables, which fell from 82.2% at end-2012 to 80.9% at end-q In nominal terms, receivables were down 6.7%. Relative to 2012, current assets rose by 1.8%, reflecting chiefly a 108.3% increase in cash and cash equivalents. The share of this position in total balance sheet assets rose from 3.5% at end-2012 to 7.7% at end-q The share of short-term financial assets fell from 7.6% (in 2012) to 5.0% at end-q The share of other current assets and deferred tax assets fell from 4.2% (in 2012) to 3.3%. At end-q3 2013, capital of all lessors reached RSD 7.1 bln, down by 7.5% from RSD 7.7 bln at end This was due to a decline in retained earnings and reserves. As at 30 September 2013, the share of capital in total balance sheet liabilities fell from 10.8% (in 2012) to 10.5%. As at 30 September 2013, long-term obligations accounted for the largest share of total liabilities 84.6%, down by 6.3% from The share of long-term foreign 4

6 Financial Leasing Supervision credits went down from 82.3% in 2012 to 80.7%, while the share of long-term domestic credits rose from 3.3% in 2012 to 3.9%. The share of short-term obligations in total liabilities rose from 3.5% in 2012 to 4.8% on 30 September Short-term domestic credits accounted for 2.8% of total liabilities (1.7% in 2012), while other obligations and deferred tax obligations made up 1.5% (as in 2012). The share of obligations under financing leasing was 0.3% (as in 2012). Table 3 Aggregate balance sheet of all lessors (in 000 RSD) No. ITEM 31/12/ /09/2013 % growth amount % amount % 30/09/13/ 31/12/12 АSSETS 71,987, FIXED ASSETS 59,829, ,868, Property, plant and equipment 486, , Financial lease receivables 59,172, ,184, Long-term financial assets 3, , Other fixed assets 167, , CURRENT ASSETS 12,158, ,374, Cash and cash equivalents 2,519, ,249, Short-term financial lease receivables 808, ,042, Short-term financial assets 5,506, ,384, Other short-term receivables 360, , Other current assets and deferred tax assets 2,963, ,294, LIABILITIES 100, , CAPITAL 7,727, ,145, Share capital 4,371, ,387, Reserves 2,221, ,541, Revaluation reserves Net unrealised gains/losses Retained earnings 3,115, ,981, Loss 1,979, ,764, Purchased own shares and stakes LONG-TERM PROVISIONING AND LIABILITIES 61,710, ,821,

7 National Bank of Serbia Table 3 Aggregate balance sheet of all lessors (in 000 RSD) No. ITEM 31/12/ /09/2013 % growth amount % amount % 30/09/13/ 31/12/ Long-term provisions 62, , Long-term liabilities 61,647, ,769, Long-term domestic credit 2,378, ,682, Long-term foreign credit 59,258, ,075, Other long-term liabilities 11, , SHORT-TERM LIABILITIES 2,549, ,276, Short-term financial liabilities 1,248, ,054, Short-term domestic credit 1,214, ,923, Short-term foreign credit Liabilities under interest and other costs of financing 34, , Financial lease liabilities 210, , Other liabilities and deferred tax liabilities Source: National Bank of Serbia. 1,089, , Balance sheet total of lessors and banks As at 30 September 2013, the ratio of balance sheet total of the leasing sector (RSD 68.2 bln) to banking sector balance sheet total equalled 2.35%, as illustrated in Chart 1. Chart 1 Balance sheet total of lessors and banks (in RSD bln) % % % % 3.03% 2.50% 2.35% 5% 0 31/12/ % Leasing sector balance sheet in RSD bln Relative to banking sector balance sheet Source: NBS. 6

8 Rank Rank Financial Leasing Supervision From 31 December 2012 to 30 September 2013, leasing sector balance sheet total declined by 5.2%, while banking sector balance sheet total increased by 0.9% (Chart 2). Chart 2 Growth rates of the balance sheet total of lessors and banks 60% 50% 40% 30% 20% 17.3% 10% 4.6% 8.7% 0.9% 0% -10% -20% -30% 2010/ / / / % -10.3% -5.2% -18.8% Leasing sector balance sheet total growth rate Banking sector balance sheet total growth rate Source: NBS Market share In order to analyse the structure of the financial leasing market and the degree of competition among different 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, based on individual market shares by the level of receivables from financial leasing (portfolio), receivables were ranked by their level. Тable 4 Market share of lessors Lessor Balance sheet assets (in 000 RSD) Share 2012 Cumul. share 2012 Lessor Balance sheet assets (in 000 RSD) Share 2013 Cumul. share 2013 Rank portfoli o Hypo Alpe-Adria- Leasing d.o.o. UniCredit Leasing Srbija d.o.o. Intesa Leasing NLB Leasing 15,491, % 21.5% 1. 6,982, % 31.2% 2. 6,876, % 40.8% 3. 5,333, % 48.2% 4. Hypo Alpe-Adria- Leasing d.o.o. UniCredit Leasing Srbija d.o.o. Intesa Leasing VB Leasing d.o.o. 11,720, % 17.2% 1 9,929, % 31.7% 2 6,541, % 41.3% 4 5,277, % 49.0% 3 7

9 Rank Rank National Bank of Serbia Тable 4 Market share of lessors Lessor Balance sheet assets (in 000 RSD) Share 2012 Cumul. share 2012 Lessor Balance sheet assets (in 000 RSD) Share 2013 Cumul. share 2013 Rank portfoli o VB Leasing d.o.o. NBG Lizing Sogelease Srbija Raiffeisen Leasing CA Leasing Srbija S-Leasing d.o.o. 10. ERB Leasing 11. a.d. 12. LIPAKS Porsche Leasing 13. SCG d.o.o. Piraeus Leasing 14. Procredit Leasing 15. Zastava Istrabenz 16. Lizing d.o.o. 5,302, % 55.6% 5. 5,002, % 62.5% 6. 4,778, % 69.1% 7. 4,653, % 75.6% 8. 2,937, % 79.7% 9. Sogelease Srbija NBG Lizing NLB Leasing Raiffeisen Leasing CA Leasing Srbija S-Leasing d.o.o. 2,784, % 83.5% 10. Porsche Leasing 2,734, % 87.3% 11. SCG d.o.o. 2,506, % 90.8% 12. LIPAKS 2,197, % 93.9% 13. 2,063, % 96.7% 14. ERB Leasing a.д. Procredit Leasing Piraeus Leasing 1,772, % 99.2% 15. Zastava Istrabenz 572, % 100.0% 16. Lizing d.o.o. 4,960, % 56.3% 5 4,911, % 63.5% 6 4,180, % 69.6% 8 4,126, % 75.6% 7 3,175, % 80.3% 10 3,062, % 84.8% 9 2,242, % 88.1% 12 2,230, % 91.4% 15 2,196, % 94.6% 11 1,696, % 97.1% 13 1,433, % 99.2% , % 100.0% 16 TOTAL 71,987, % - TOTAL 68,243, % - Herfindahl Herfindahl Hirschman Index Hirschman Index Source: National Bank of Serbia. The HHI of on 30 September 2013 points to competitiveness of the Serbian financial leasing market. As illustrated in Table 4, the ranking of lessors by market share changed slightly from end The top three lessors kept their leading positions, with their market share up from 40.8% to 41.3%. Relative to 2012, the greatest change in ranking and market share by the level of balance sheet assets as of 30 September 2013 was recorded for NLB Leasing d.o.o., which moved from the fourth to the seventh place, with its market share down from 7.4% to 6.1%. The greatest difference in ranking by the level of balance sheet assets and the portfolio was observed for LIPAKS, which occupied the 15 th place in terms of the portfolio level and the 12 th place in terms of balance sheet assets, while ERB Leasing a.d. held the 11 th place in terms of portfolio and the 13 th place in terms of balance sheet assets. 8

10 Financial Leasing Supervision 2.4. Profit and loss account In the first three quarters of 2013, total profit before tax of all financial lessors was negative at RSD mln (it was positive in 2012 at RSD 19.1 mln). Nine lessors posted positive profit before tax of RSD mln, while seven lessors had a negative result of RSD mln. In the period under review, relative to 2012, total income and gains dropped by 21.7% and total expenses and losses by 12.4%. Interest income from leasing accounted for the major part of total income, its share up from 72.6% in 2012 to 75.1% in Q Income from leasing operations (conclusion and implementation of financial lease contracts processing of financing applications, over-invoiced costs, other costs arising from the non-settlement of lessor obligations) accounted for 14.3% of total income. Net income from other interest accounted for 6.5%, and other income and gains 3.7%. Interest expenses arising from leasing operations accounted for the largest share of total expenses. Their share in total income fell from 34.1% in 2012 to 32.9% in Q Net expenses of asset valuation adjustment accounted for 21.6% of total expenses; earnings, fees, salaries and other personal expenses accounted also for 21.6%; and other operating expenses for 19.9%. Other losses and expenses accounted for 6.0%, expenses arising from leasing operations accounted for 4.6%, depreciation and provisioning for 2.6%. Тable 5 Aggregate profit and loss account of all lessors (in 000 RSD) No. ITEM 01/01 31/12/12 % of tot. inc. 01/01 30/09/13 % of tot. inc. % growth 2013/ 2012 INCOME AND EXPENSES FROM REGULAR OPERATIONS OPERATING INCOME AND EXPENSES 1 Interest income from leasing 4,705, ,857, Interest expenses from leasing 2,211, ,250, Income from leasing 808, , Expenses from leasing 248, , I BUSINESS RESULT 3,054, ,974, ОTHER INCOME AND EXPENSES 5 Net income from other interest 373, , Net expenses from other interest Net income from exchange rate differentials and currency clause effects Net expenses from exchange rate differentials and currency clause effects 326, ,

11 National Bank of Serbia Тable 5 Aggregate profit and loss account of all lessors (in 000 RSD) No. ITEM 01/01 31/12/12 % of tot. inc. 01/01 30/09/13 % of tot. inc. % growth 2013/ Net income from share in income of related legal entities and joint investment , Net expenses from share in losses of related legal entities and joint investment Net income from sale and lease Net losses from sale and lease 77, , Earnings, fees, salaries and other personal expenses 1,102, , Depreciation and provisioning 137, , Other operating expenses 1,139, , Net income from sale of intangible investment, property, plant, equipment and other assets Net loss from sale of intangible investment, property, plant, equipment and other assets Net income from sale of share in capital and securities Net loss from sale of share in capital and securities Net income from asset valuation adjustment Net expenses from asset valuation adjustment 12, , ,397, , Other income and gains 255, , Other expenses and losses 149, , II REGULAR OPERATING RESULT 19, , NET GAIN FROM DISCONTINUED OPERATIONS NET LOSS FROM DISCONTINUED OPERATIONS III PRE-TAX RESULT 19, , PROFIT TAX Tax expense of the period 205, , Deferred tax expenses of the period 94, , Deferred tax income of the period 22, Paid personal income to employer IV. NET RESULT -258, , V. TOTAL INCOME AND PROFIT 6,482, ,806, VI. TOTAL EXPENSES AND LOSSES 6,463, ,245, Source: National Bank of Serbia 10

12 Financial Leasing Supervision 3. Structure of investments and assets quality 3.1. Lessees Like at end-2012, most financial lease arrangements (Chart 3) were approved to non-financial sector companies (84.7%). The share of entrepreneurs was 3.6%, farmers 3.6%, natural persons 3.4%, and public enterprises 3.2%. Chart 3 - Investment structure by lessee 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Banks Other fin.sector entities Rep. of Serbia Local government Public enterprises Nonfin. sector companies Entrepreneurs Farmers Natural persons Other residents Nonresidents % 0.1% 0.2% 0.2% 2.2% 86.9% 3.9% 1.9% 3.9% 0.2% 0.0% % 0.1% 0.3% 0.2% 3.2% 84.7% 3.6% 3.6% 3.4% 0.1% 0.3% Source: NBS Lease asset At end-q3 2013, there were no major changes in the structure of lease investments by the lease asset (Chart 4) relative to the previous year. The financing of freight vehicles, minibuses and buses continued to account for the largest share of lease investments 34.7% (33.3% in 2012). Next in size was the share of passenger vehicles 25.3% (25.6% in 2012). The share of financing of production machinery and equipment went down from 12.6% in 2012 to 10.2% at end-q3 2013, as well as the share of financing construction machinery and equipment from 7.1% to 5.8%. The share of financing agricultural equipment upped from 9.1% to 9.2%. The share of financing other movables was up from 6.9% to 7.0%, and service provision equipment from 2.7% to 3.8%. 11

National Bank of Serbia Chart 4 - Investment structure by lease asset 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Production machinery Construct. Machines Agricult.

1% 9.1% 33.3% 25.6% 1.2% 0.0% 2.7% 6.9% 1.4% 0.0% 30.09.2013 10.2% 5.8% 9.2% 34.7% 25.3% 2.3% 0.0% 3.8% 7.0% 1.5% 0.2% Source: NBS. 3.3. Investment structure by sector The most significant share in total financial lease investments (Chart 5) was that of transport, warehousing, information and communications (29.

13 National Bank of Serbia Chart 4 - Investment structure by lease asset 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Production machinery Construct. Machines Agricult. Equipment Freight vehicles, buses Passenger vehicles Rail v; marine v; aircraft Household appliances Service provision equipment Other movables Commercial immovables Other immovables % 7.1% 9.1% 33.3% 25.6% 1.2% 0.0% 2.7% 6.9% 1.4% 0.0% % 5.8% 9.2% 34.7% 25.3% 2.3% 0.0% 3.8% 7.0% 1.5% 0.2% Source: NBS Investment structure by sector The most significant share in total financial lease investments (Chart 5) was that of transport, warehousing, information and communications (29.5% vs. 28.5% in 2012). A significant share was also noted for manufacturing together with mining and water supply (22.4% vs. 23.1% in 2012), trade (14.6% vs. 16.2% in 2012), other activities (12.5% vs. 13.5% in 2012), agriculture, forestry and fishing (9.1% vs. 7.0% in 2012), and construction (8.9% vs. 8.3% in 2012). Chart 5 - Investment structure by sector 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Agricult., forestry, fishing Mining, manufacturing Elect., gas&steam supply Trade Construction Transport, warehous, communic. Accomod. & food services Financial activities Health& social welf. Other activities % 23.1% 0.5% 8.3% 16.2% 28.5% 1.0% 1.0% 0.8% 13.5% % 22.4% 0.4% 8.9% 14.6% 29.5% 0.7% 1.0% 0.9% 12.5% Source: NBS. 12

14 Financial Leasing Supervision 3.4. Assets quality On 30 September 2013, the value of financial lessors portfolio was RSD 55.2 bln, which represents a 6.7% decline relative to end-2012 (RSD 59.2 bln). Past due gross receivables reached RSD 10.8 bln, making up 17.1% of gross receivables in respect of financial leasing (17.2% in 2012), while the net book value of past due receivables was RSD 4.4 bln its share in portfolio was 8.0% (9.1% in 2012), and in capital 61.4% (69.5% in 2012). At end-q3, financial leasing receivables past due for more than 90 days accounted for 14.8% of total receivables (14.4% in 2012), while the net book value of these receivables made up 5.9% (6.6% in 2012) of the total portfolio. The share of value adjustment of due and undue receivables came at RSD 7.8 bln on 30 September 2013, while its share in total gross receivables was 12.4%, which is an increase relative to end-2012 when it equalled 11.0%. In the first three quarters of 2013, the value of returned lease assets was RSD 1.8 bln, which, together with outstanding balances from previous years, came to RSD 3.5 bln or 6.3% of the portfolio and 48.4% of capital (at end-2012, 8.2% and 62.8% respectively). Of the above value of the returned lease assets, lessors re-leased 13.3%, sold 39.4%, while 40.9% remained unemployed. The value of returned lease assets was reduced through valuation adjustment by 6.4%. As at 30 September 2013, the stock of returned lease assets came at RSD 1.4 bln or 2.6% of the portfolio and 19.8% of capital (at end-2012, the stock of returned lease assets came at 2.9% of the portfolio and 22.4% of capital). 4. Performance indicators Performance indicators of financial leasing providers (ROA and ROE) were negative at end-q owing to the negative pre-tax result. The average lending rate declined more than the deposit rate, which resulted in reduced net interest margin. The coverage of interest expenses went down, and operating expenses rose slightly relative to average investment. As equity decreased more than debt, solvency in the financial leasing market deteriorated. This is supported by the fact that total debt and long-term debt were 8.55 and 8.09 times higher than capital, respectively. 13

15 National Bank of Serbia Table 6 Performance indicators PERFORMANCE INDICATOR 31/12/ /09/2013 Return on assets (ROA) 0.03% -0.83% Return on equity (ROE) 0.24% -7.87% Net interest margin 4.68% 4.32% Average lending rate 8.38% 7.38% Average deposit rate 3.39% 2.86% Coverage of interest expenses 1.01x 0.67x Operating expenses to average investment 3.89% 3.91% Total debt to equity 8.32х 8.55х Long-term debt to equity 7.99x 8.09x Source: National Bank of Serbia. 5. Sources of financing The balance sheet structure indicates that the largest portion of financial lease investment was financed from foreign borrowing as at 30 September 2013, foreign credit obligations made up 80.7% of total liabilities, while financial lease investment accounted for 80.9% of total assets. The share of long-term domestic credits rose from 3.3% in 2012 to 3.9% of total liabilities, while the share of short-term domestic credits was up from 1.7% to 2.8%. In the majority of cases, foreign creditors of leasing companies were either their founders or legal entities operating within the same banking group. 14

FINANCIAL LEASING SECTOR IN SERBIA

BANK SUPERVISION DEPARTMENT FINANCIAL LEASING SECTOR IN SERBIA Second Quarter Report 2017 September 2017 Contents: 1 Basic information about the Serbian financial leasing sector... 3 1.1 Overview of the