The Leasing Market in Europe

1. The Leasing Market in Europe Jean-Marc Mignerey Chairman, Leaseurope CEO, SG Equipment Finance Kyiv, February, 21st 2006

2. I. Leasing definition • IAS17: an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time • Otherwise definition varies from country to country • Can involve all types of assets e.g. cars, trucks, planes, trains, industrial and agricultural machinery, medical equipment, buildings, etc. The common feature of the contracts being that the lessor retains the ownership of the leased asset • A lessor benefits from superior protection compared to a party granting an equivalent bank loan to finance the same asset

3. II. The European Leasing Market (1) • In the first 6 months of 2005, Leaseurope members financed assets worth approx 120 billion € • +9.42% compared to the same period 2004 • Of which: • 104 billion new equipment & hire purchase production (+6.57%) • 16 billion new real estate business (+30.5%) • Forecasted total new production for end 2005: between 239 and 251 billion € • Similar to forecast for US which is expected to be just under 210 billion € (ELA)

4. II. The European Leasing Market (2) • Leaseurope currently represents over 92% of the European leasing industry & has 31 members in both EU and non-EU countries • The European market is an aggregate of several different types of markets: • 4 large & mature markets

5. II. The European Leasing Market (3) The large, mature European markets: D F UK I

6. II. The European Leasing Market (4) • Leaseurope currently represents over 92% of the European leasing industry & has 31 members in both EU and non-EU countries • The European market is an aggregate of several different types of markets: • 4 large & mature markets • Several smaller mature or relatively mature markets

7. II. The European Leasing Market (5) CH DK A NO NL FIN B S

8. II. The European Leasing Market (6) • Leaseurope currently represents over 92% of the European leasing industry & has 31 members in both EU and non-EU countries • The European market is an aggregate of several different types of markets: • 4 large & mature markets • Several smaller mature or relatively mature markets • “Emerging” markets

9. II. The European Leasing Market (7) RO HU SL PL CZ SK EE E

10. II. The European Leasing Market (6) CH RO HU SL PL CZ DK SK A NO EE E NL FIN B 2 DISTINCT GROUPS S

11. II. The European Leasing Market (9) A concentrated market • Top 10 represent 28% of the market • Top 20 represent 41%

12. III. The Importance of Leasing (1) • Leasing provides capital to finance investment at reasonable cost • And this translates into a healthy economy, generates employment, promotes innovation (access to technology), can be used by the producers of goods and of services alike and can help expansion into new markets where capital expenditure is required LEASING GDP INVESTMENT CAPITAL

13. III. The Importance of Leasing (2) • Research shows that smaller companies in particular rely on lease finance: 40% of EU SMEs use leasing SME’s use of external financing in the EU Source: Grant & Thorton Survey of SMEs (2001) % of SMEs using lease finance * Indicates leasing > loans % of SMEs using bank loans

14. III. The Importance of Leasing (3) • Research shows that smaller companies in particular rely on lease finance: • Cheaper and sometimes only source of funds for high growth potential companies in information asymmetries • Driven by growth opportunities and not mainly by tax considerations • Easiest way to renew or buy new equipment – cash flow and asset based analysis • No collateral required as the leased asset acts as collateral Leasing allows SMEs to survive & grow

15. III. The Importance of Leasing (4) • Why is it so important to promote SMEs? • In developing markets: • Enables renewal of obsolete fixed assets • Increases demand for (less skilled) labour, • Generates additional household income • Gives access to new technologies •  Increases citizens’ wealth, consumption and GDP • In mature markets: • Creates knowledge spillovers & encourages innovation • Presence of SMEs creates a variety of enterprises and encourages competition •  Increases GDP , productivity and fosters innovation *in 2003 approw. 20 millio SMEs in the EU-19, source: SME Observatory

16. III. The Importance of Leasing (5) • Leasing also benefits generally from the following advantages (retail and corporate customers): • Allows the lessee to finance 100% of the asset • Enables easy acquisition or renewal of equipment • Allows a firm to use equipment that it may not wish to purchase • Can be beneficial from a tax point of view • For the lessor: • Is less risky than equivalent debt (low or negative LGDs) • Leasing has a specific treatment under the EU transposition of Basel II

17. III. The Importance of Leasing (6) Average recovery rates by seniority of corporate bonds and loans: a comparison with leasing Recovery rates for leasing are as high as the best senior secured bank loans

18. IV. Leasing in CESEE countries (1) • The average penetration rate for Leaseurope was approx 15% in 2004 • CESEE countries tend to have higher than average PRs: Leasing already is a major means of finance in the region !

19. IV. Leasing in CESEE countries (2) • Share of equipment leased according to asset type & cluster: • Cars and road transport vehicles are the most important • Machinery represents 16% • IT equipment still small but will grow as the economy develops

20. V. What do we expect from the Authorities? • A stable legislative, fiscal (and regulatory) environment • Tax depreciation schemes should encourage investment in capital equipment • Secure rules regarding the rights of ownership • Bankruptcy laws must be suitable and execution easy • Repossession procedures must be facilitated • Court proceedings must be swift with consistent decisions • Availability of LT financial resources • Transparency of corporate performance • Clear rules of corporate governance Lessors need clear rules and stability

21. VI. Leaseurope’s Activities in the Region (1) • A working group dedicated specifically to the region

22. VI. Leaseurope’s Activities in the Region (2) • A working group dedicated specially to the region: • Examines concerns relating to tax and / or leasing laws • Creates a leasing network in these countries • Provides information impacting the industry directly from Brussels • Organisation of an annual seminar hosted by one of the CESEE member countries to promote leasing in the region, technical advice, networks, etc. • Leaseurope is to launch a European-wide survey on the economic impact of leasing on SMEs to gain further understanding of the effects of leasing in different European countries – Ukrainian participation ?

23. The Leasing Market in Europe Please do not hesitate to contact us for further information on: Leasing Statistics or Economic Affairs Relating to Leasing www.leaseurope.org j.mills@leaseurope.org CESEE Working Group b.jancik@leasingverband.at