Leasing & Finance 2023

Leasing & Finance SPECIAL FEATURE

December 2023

GROWTH The growth of financial leasing demonstrates how companies are increasingly recognising the advantages of this financing model and its impact on reducing costs.

ECOLOGY

POSSIBILITIES

Financial leasing could play a role in financing the purchase of solar panels, energy-efficient systems and other eco-friendly innovations.

Companies that want to implement green technologies can take advantage of financial leasing as a means of investing without significantly burdening their liquidity.

BENEFITS Financial leasing often offers faster approvals and less demanding procedures compared to traditional bank loans, making this option particularly attractive to SMEs.

INTERVIEW

COMPANIES ARE TURNING INCREASINGLY TO FINANCIAL LEASING The growth of financial leasing demonstrates how companies are increasingly recognising the advantages of this financing model and its impact on reducing costs, improving liquidity and increasing flexibility in the management of resources. This is also reflected in companies’ growing confidence in this alternative financing option

DARKO STAMENKOVIĆ General Manager of the Bank Supervision Department at the National Bank of Serbia

02

he banking sector plays a dominant role in the financial sector and represents a key factor of stability for the financial system, while the importance of financial leasing is simultaneously also on the rise.

According to the statistics of the National Bank of Serbia (NBS), the Serbian banking sector accounts for 90.7% of total assets of the country’s financial sector, while fi-

T

nancial leasing accounts for a 2.5% share of total gross receivables.

Rising interest rates over the previous period, amid monetary policy tightening by leading central banks and the NBS aimed at curbing inflationary pressures, could represent a challenge for companies and individuals that use alternative financing options for their businesses and lead to falling demand for loans and financial leasing as a result of the increase in

the cost of borrowing, particularly for those accustomed to unusually low interest rates.

According to Darko Stamenković, general manager of the Bank Supervision Department at the National Bank of Serbia, the central bank carefully monitors developments on the domestic and international markets and responds timely with the aim of preserving the stability of the financial system and protecting the users of financial services. “It is important to underscore that when interest rate rises follow economic growth, which is the case in Serbia, various financing options, including financial leasing, remain attractive sources of investment financing,” explains Stamenković.

This claim is also illustrated by the fact that the banking sector’s investment loans continue to record year-on-year growth, despite challenges coming from the international environment, having amounted to 3.1% in June, while their share in total corporate loans reached 41%. Furthermore, financial leasing continues to record continuous growth as an alternative source of investment financing in Serbia, with the total balance sheet assets of all leasing providers reaching 158 billion dinars as of 30 September 2023.

“Compared to end-2019, or over a period of less than four years, the total balance sheet assets of financial leasing providers increased by 53.5%, while recording growth of 9% during the first nine months of this year alone, against the background of increased interest rates. The most important lessees are companies that do not belong to the financial sector, with an 84.1% share of the total placements of financial leasing providers,” says Stamenković. “Looking at the lease assets, the largest participation in placements continues to relate to the financing of passenger vehicles (42.7%), as well as the financing of haulage vehicles, minibuses and buses (34.8%).”

tributed to further strengthening the resilience and stability of the financial sector, increasing banking sector efficiency and improving the quality and availability of banks’ financial services. New investments in the financial sector, such as the early 2023 greenfield investment in the financial leasing sector by a banking group that has a long tradition of doing business in banking and the leasing industry, are yet another proof of investor confidence in the continued growth and development of the domestic financial market.

Banks provide traditional services, such as loans and lines of credit, while financial leasing enables users to gain access to funding without the need for direct

ENSURING THE DIVERSITY OF OPTIONS AND PROVIDERS OF FINANCIAL SERVICES, WHICH THE NBS HAS BEEN WORKING ON INTENSIVELY DURING THE PREVIOUS PERIOD, ADVANCES COMPETITION ON THE DOMESTIC MARKET AND ENABLES CLIENTS TO CHOOSE THE BEST SOLUTIONS THAT MEET THEIR SPECIFIC NEEDS All of the aforementioned serves to confirm the continued positive contribution of the financial sector to the growth and development of the domestic economy, concludes our interlocutor.

What kinds of trends can we expect in these two sectors in 2024?

— The banking sector consolidation in the previous period, despite being driven primarily by the decisions of shareholders in response to events unfolding on the markets of their parent banks, actually confirms the attractiveness of Serbia’s domestic financial system, and that is thanks to the active role of the NBS, which has con-

cordmagazine.com

ownership. It is precisely for this reason that financial leasing often offers faster approval and less demanding procedures when compared to traditional bank loans, which makes this option particularly attractive to SMEs seeking faster access to capital. Regardless of this fact, the financial leasing sector traditionally has a low share of NPLs in its total portfolio, while financial leasing receivables past due for more than 90 days stood at just 1.03% of total gross receivables as of 30 September 2023, which points to the positive contribution of the financial leasing sector to the sustainable financing of households and businesses.

What kind of support to the economy can these two sectors provide in the year ahead?

— The NBS expects all participants in the domestic financial market – respecting the needs of their clients – to adapt their strategies by offering innovative products, adjusting interest rates or offering additional benefits, under current conditions of higher interest rates, in order to remain competitive and maintain the financial sector’s positive contribution to total economic activity.

The NBS works continuously on amendments to the regulatory framework that support the development of the financial leasing market in the country, thus contributing to increased legal certainty and transparency in doing business and creating healthy competition that will benefit end-users. The NBS’s latest amendments to the Decision on Management of Risks Arising from Introduction of New Products/ Services by Lessors enable financial lessors to provide - in addition to financial leasing services – the related financial services, such as operational leasing services, with which the quality of the lessors’ offer has been expanded and improved.

These changes increase the attractiveness of the market to both domestic and foreign investors.

Looking to the future, in the context of the growth prospects of Serbia’s domestic financial leasing market, the possible role of this financial instrument in supporting the financing of green technology and electric vehicles is worthy of special consideration. In line with trends in the international environment, financial leasing has a significant potential role in the provision of funds for companies and individuals seeking to invest in electric vehicles, as well as in providing financial support for other green technologies, such as financing the purchase of solar panels, energy-efficient systems and other eco-friendly innovations.

POSSIBILITIES Companies wanting to implement green technologies have the possibility to take advantage of financial leasing as a means of investing without significantly burdening their liquidity

ECOLOGY Financial leasing could play a role in financing the purchase of solar panels, energyefficient systems and other ecofriendly innovations

GROWTH The total balance sheet assets of financial leasing providers grew by 53.5% in less than four years, while recording growth of 9% during the first nine months of this year alone, against the background of increased interest rates

03

CORPORATE

20 YEARS OF INTESA LEASING Over the past two decades, a market environment that’s been marked by significant economic crises, a global pandemic and frequent geopolitical uncertainties, coupled with the unstoppable advancement of new technologies and artificial intelligence that has completely transformed all sectors of the economy, has forced the corporate sector to constantly change and adapt. Those companies that demonstrated a readiness and ability to transform and adjust to market conditions have succeeded in fortifying their positions and improving their business

Leadership through innovation and expertise

04

ince its 2003 establishment as part of Banca Intesa, and as one of the Serbian market’s first leasing companies, Intesa Leasing has grown to become a leader, proud of having achieved a series of business successes over

S

these 20 years. Thanks to a strategy of diversified growth, active digitalisation and the automation of operations, as well as sustainable financing and investment in the development of quality personnel, by the end of the first half of 2023 Intesa Leasing had achieved record

levels of capital, a record balance sheet total, portfolio and production level, with a client base exceeding 10,000, thus positioning itself as the leading company on the domestic leasing market.

By focusing on digital transformation and creating a new business model, during the pandemic the company enabled clients to receive on-the-spot vehicle financing approvals through the unique

COMBINING INTERNATIONAL EXPERIENCE AND LOCAL KNOWLEDGE

Intesa Leasing portal. In line with market trends and the altered habits of clients, Intesa Leasing is also working intensively to develop a completely paperless business approach, which in practice involves online financing approvals and the fully digital signing of contracts and accompanying documentation, without the need to visit Intesa Leasing offices. As the first step in this direction, the company – working in collaboration with the Business Registers Agency, the Ministry of Internal Affairs and the Office for IT and eGovernment of the Republic of Serbia – provided clients with the opportunity to register vehicles digitally.

Intesa Leasing demonstrates its commitment to environmental and CSR principles, as well as sustainable management, through the integration of ESG principles into its operations, as well as by continuously enhancing its offer to support the ESG projects of clients in collaboration with its parent group, Intesa Sanpaolo, and international financial institutions like the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the German Develop-

cordmagazine.com

ment Bank (KfW), the International Finance Corporation (IFC) and other similar organisations. Among the recent examples of this form of support is a line of credit arranged with KfW Bank that’s intended for micro, small and medium-sized enterprises and aims to finance sustainable projects and initiatives that focus on improving competitiveness in rural areas. Along with more favourable financing for projects in rural areas, this credit line also provides funding for energy efficiency initiatives, while giving clients an option to secure grants equalling as much as 10 per cent of the total value of the investment.

As a leader of the domestic leasing market in terms of total assets, portfolio size and new production volume, Intesa Leasing, as part of Banca Intesa, provides clients with financing services for commercial and passenger vehicles, agricultural, construction and manufacturing machinery and other equipment, as well as real estate. Intesa Leasing combines modern international experience with local expertise and market understanding to offer clients suitable financial solutions that are aligned with their needs and expectations, thereby supporting the overall economic development of Serbia and the wellbeing of society at large.

It is often said that it is more challenging to preserve a leadership position than to attain one.

Therefore, in the coming year, Intesa Leasing will remain focused on improving its offer, further implementing its digital agenda, expanding its portfolio and developing the talents and expertise of its employees, while supporting the goals of its clients and contributing to the country’s overall economic and social progress.

BY THE END OF THE FIRST HALF OF 2023 INTESA LEASING HAD ACHIEVED RECORD LEVELS OF CAPITAL, A RECORD BALANCE SHEET TOTAL, PORTFOLIO AND PRODUCTION LEVEL, WITH A CLIENT BASE EXCEEDING 10,000, THUS POSITIONING ITSELF AS THE LEADING COMPANY ON THE DOMESTIC LEASING MARKET 05

BORIS STEVIĆ Executive Board Chairman NLB Lease&Go Leasing d.o.o.

Beograd

CORPORATE

CHAMPION OF SPEED AND SIMPLICITY Company NLB Lease&Go Leasing launched its operations in Serbia in December 2022, with the acquisition of Zastava Istrabenz Lizing, a company that had just six employees and a market share of less than 0.5%. Today, just a year later, the company has 32 employees and is in a good position, which is why its executive board chairman sees Serbia as a very important market with great growth potential

06

ata shows that in most developed countries of the EU, more than 40% of SMEs use leasing services, but Serbia is still far away from achieving those figures, – says Boris Stević, explaining that this is why we have to continue with educating the business sector and citizens about the advantages of financing through leasing and in general increase financial literacy.

D

NLB Lease&Go entered the Serbian market just a year ago. Are you satisfied with the way things are progressing?

DEVELOPMENT — We are extremely satisfied with the operational results achieved in the first year. We succeeded in reaching a market share of 11% in new financing by the end of the third quarter, thereby joining the ranks of companies that have been operating here for many years. These positive outcomes are primarily a result of the work of a team of experienced individuals who managed – with their knowledge, dedication and motivation - to secure a good position for us in just the first year of operations.

We set out in the first year with financial leasing and received a license for representation in insurance, while next year we plan to enrich the offer with operational leasing.

The Association of Leasing Companies of Serbia (ALCS) announced recently that leasing has enabled investments of eight billion euros in Serbia over the past 20 years. How do these numbers seem to

As we are part of NLB Group, we can share with you, that for instance Slovenian leasing market is twice as large as the same market in Serbia. The participation of private individuals is less than 10% here, while in Slovenia it stands at almost 50%. Plenty of room exists for the further development of leasing, and one of the things that must be resolved is the eliminating of VAT on interest, because that represents an additional cost for the client when it comes to buying a passenger vehicle. We would thus make leasing a more competitive product and enable a greater number of citizens to replace their outdated vehicle fleet.

Do ESG policies and digitalisation fit into your business?

— Of course... ESG policy is very important for us, because leasing can - as a financial institution - support the green agenda in multiple ways: through the financing of projects for generating electricity from renewables and financing vehicles that emit lower levels of pollution.

OUR MISSION IS TO BE FOCUSED ON OUR CLIENTS AND TO BECOME A CHAMPION OF SIMPLICITY AND SPEED you? Do you view the future of your industry with a sense of optimism?

— When we divide that total by 20 years, we arrive at a sum of approximately 400 million euros annually, which points to great growth potential. The leasing market is still very young and has a great potential in Serbia, especially when we compare it, for example, to Austria or Germany, where leasing has been present for more than half a century.

cordmagazine.com

We adopted a policy of sustainably managing the vehicle fleet, so it is now mandatory for all companies operating within the NLB Group to use electric or hybrid vehicles. Apart from passenger vehicles, we’ve also financed the procurement of electric buses for city transport in Belgrade and thus reduced the level of pollution in the capital.

Just as we are committed to the green agenda, so we devote a lot of attention to digitalisation.Our par-

Plenty of room exists for the further development of leasing, and one of the things that must be resolved is the elimination of VAT on interest, because that represents an additional cost for the client when it comes to buying a passenger vehicle

ent company in Slovenia is very advanced when it comes to the development of digital services, so we have ambition to transfer those innovations also to our market as well. We aim to implement most of those services in Serbia, some already during next year. Looking to the long term, we want to develop the best possible position for ourselves on the Serbian market, to be recognised for the quality of our services and to occupy one of the leading positions. Our mission is to be focused on our clients and to become a champion of simplicity and speed and by that together with NLB Komercijalna banka offer wide portfolio of financial services and products What was the biggest challenge of entering the Serbian market?

— From my personal perspective, as someone who has long been present in the leasing industry, the challenges were related to the organising of the new company, the creation of a team and a strategy. From the perspective of NLB Group, the Serbian market has a strategic importance for the Group and therfore Serbia truly is in the main focus of the entire Group. Huge potential exists to further develop the leasing market in Serbia.

We entered this new business with a market share of less than

0.5% 11% and reached

in just the first year

07

FEATURE

LEASING IS THE INDUSTRY OF THE FUTURE Two full decades have passed since leasing made its appearance in Serbia. In this time more than eight billion euros have been invested in the economy through this form of finance. In the last 10 years, the sector has recorded a stable growth of 13 % per annum despite the challenging macroeconomic environment

n the years to come, the leasing industry will focus on digitalization and the green transition. Besides financing the purchase of electric vehicles, leasing will support it by financing the construction of production facilities for renewable energy sources, primarily solar power plants Two full decades have passed since the appearance of leasing in Serbia, during which more than eight billion euros have been invested in the economy through this form of financing. In these 20 years, about 250,000 contracts were signed, mostly for financing passenger vehicles. According to data from the Association of Leasing Companies of Serbia, every third new vehicle sold in 2022 will be financed in

I

08

this way. Although leasing in our country mainly concerns the financing of passenger vehicles which in the third quarter of 2023 still dominate the portfolio with 47%, about 35% of the total production is made up of commercial vehicles such as various delivery vehicles and trucks, as well as city and tourist buses.

Besides this, leasing in Serbia has in many cases financed the purchase of machinery and equipment, from construction and agricultural machinery to various kinds of manufacturing equipment, so that with the growing popularity of the green agenda and green energy, leasing companies have begun to work on financing solar energy in which Serbia is following global and European trends.

FINANCIAL LEASING IS BOOMING The global financial leasing market is expected to continue its years of strong growth as it provides companies with an alternative means of acquiring key equipment and resources without large initial capital expenditure. Among the factors driving the growth of the financial leasing market is the growing need for companies to remain competitive by constantly improving their assets. In fact, the ability to access state-of-the-art equipment without the burden of ownership costs is a significant driver, as are the tax benefits associated with leasing arrangements.

This market is gaining momentum due to the advantages it offers, such as flexibility, tax benefits and capital preservation.

The latter is especially important in conditions of global crisis, whether caused by a pandemic like three years ago or by war.

As in the past, it is expected that North America, especially the United States and Canada, will continue to dominate financial leasing in future, but Europe is no less an important player in this market. Countries such as the UK, Germany, France and the Netherlands have well-developed leasing industries and serve as major hubs for leasing activity. The Asia-Pacific region is experiencing significant growth in the financial leasing market, with China, Japan, South Korea and India increasingly embracing leasing as businesses look for cost-effective financing options, primarily

GROWTH REACHES 19% PER YEAR Most leasing companies operating in Serbia have been founded by entities based in the European Union, so EU policies need to be applied here as well. They have committed to having a green portion in their portfolios, so we may expect leasing companies to set aside 20 million euros for financing electric cars, buses and light commercial vehicles by the end of this year, while next year that amount could be higher.

in the booming manufacturing and construction sectors.

TIME TO ‘REFRESH’ THE LAW

Just as in Serbia, the largest global development in leasing will be related to the car leasing market, which will be influenced by many factors, such as technological progress, consumer expectations and changes in economic conditions. With increasing concern for the environment and an increasing emphasis on sustainable transport, the demand for electric vehicles is expected to grow, and so will the need for leasing to purchase them. At the same time we should remember that Serbia, with around 30,000 unsold vehicles, is below the European average and that the number is expected to be much higher. And that there are grounds for optimism is shown by the fact that the leasing industry has recorded a stable annual growth of 13% over the last 10 years, despite the challenging macroeconomic environment.

The Serbian Association of Leasing Companies says that it would be good and useful to ‘refresh’ the Financial Leasing Act. It was adopted long ago in 2011, and needs to be aligned with client’s expectations and technological developments, especially in terms of digitalization. Although the leasing industry has introduced many innovations in the digital aspect of sales since the pandemic, which clients can feel in their communicordmagazine.com

cation with leasing companies in the collection of documentation and the approval process, this is not yet at a satisfactory level since the industry is facing many obstacles that complicate the process.

Apart from the problems of a low limit for concluding remote contracts and the endless challenges for digital vehicle registration, there is also a small percentage of digitally signed contracts. Fortunately, projections suggest that in the next two to three years two-thirds of leasing companies will have digitally signed contracts, and that in the coming years, clients will have a much larger portfolio of digital services at their disposal.

In the next three years, the value of financing electric vehicles through leasing in Serbia could reach several tens of millions of euros, while it is expected that a third of the total number of contracts will be concluded partially or entirely digitally.

GROWTH REACHES 19% PER YEAR

Most leasing companies operating in Serbia have been founded by entities based in the European Union, so EU policies need to be applied here as well. They have committed to having a green portion in their portfolios, so we may expect leasing companies to set aside 20 million euros for financing electric cars, buses and light commercial vehicles by the end of this year, while next year that amount could be higher.

The Serbian Association of Leasing Companies says that in the coming years, the amounts allocated for indirect financing of environmental protection and reduction of greenhouse gas emissions will increase. And the fact that leasing has a huge potential in financing solar power plants, especially for consumers, has been shown by the number of contracts already concluded with those who will use solar power plants for their own consumption and for returning energy to the grid.

Financial leasing this year will amount to around 800 million euros, an annual growth of 19%. If the trend continues, it could reach 1 billion euros in new production next year.

The Serbian Association of Leasing Companies says that in the coming years, the amounts allocated for indirect financing of environmental protection and reduction of greenhouse gas emissions will increase. And the fact that leasing has a huge potential in financing solar power plants, especially for consumers, has been shown by the number of contracts already concluded with those who will use solar power plants for their own consumption and for returning energy to the grid.

Financial leasing this year will amount to around 800 million euros, an annual growth of 19%. If the trend continues, it could reach 1 billion euros in new production next year.

09