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RESHAPING OF EMERGING MARKETS

RESHAPING OF EMERGING MARKETS What does it imply for leasing industries in Turk ey and other emerging economies. Cüneyt Akpınar EFG Leasing. Outline. C hanging dynamics of the emerging markets & the potential for their leasing industries. Special Reference: Turkish Leasing Industry.

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RESHAPING OF EMERGING MARKETS

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  1. RESHAPING OF EMERGING MARKETS What does it imply for leasing industries inTurkeyand other emerging economies Cüneyt Akpınar EFG Leasing

  2. Outline Changing dynamics of the emerging markets & the potential for their leasing industries Special Reference: Turkish Leasing Industry

  3. Shifting Balances Emerging Economies Advanced Economies *Emerging Economies as % of total World, 2010; Source: IMF

  4. EM: Strong Human Capital Projected Growth of Working Age Population (Ages 10-65), 2005-2030

  5. They are growing faster than the advanced economies Contribution to Global Growth Emerging Economies Source: HSBC Advanced Economies GDP Growth 2010 2011 2012 Advanced Economies 3.0 2.4 2.6 Emerging Economies 7.3 6.5 7.0 Source: IMF

  6. By 2050… Relative Size of G7 and E7 Economies E7 countries, to outperform growth in US, EU, G7 and OECD. E7 to attract the highest levels of capital inflow and substantial increase in trade volumes. *US$ bn at constant 2006 prices Source: Goldman Sachs, PriceWaterHouseCoopers

  7. They invest heavily in sectors where leasing industry is the most active Energy Infrastructure Transportation Telecommunications Health

  8. Share of Formal SMEs in Formal Manufacturing Employment & GDP, % Share of SMEs in GDP growth & employment is very high… …but their access to financial services remains severely constrained

  9. Key Take Away: Emerging Markets will provide significant growth prospect for their leasing industries… Larger and relatively stronger Offering significant growth potential Under-penetrated Under-capitalized Under-leveraged Under-valued Providing compelling sector/company-specific stories

  10. …& significant value-added for global players Margins are higher Returns are stronger Penetration levels are low Strong M&A activity as well as privatizations and greenfiled investments Scope for know-how transfer and value add

  11. …& ..but “High Return” comes with “High Risk” Bottlenecks in legislative framework ? Unregistered economy ? Liquidity ? Instable financial markets ? Corruption ? Cross-border funding?

  12. Special Reference: Turkish Leasing Industry

  13. What can Turkey offer different from other Emerging Markets Unique Geographical Location… • …at the crossroads between East & West, overlapping Europe & Asia geographically • …occupies an area approximately equivalent to the quarter of the size of the EU • …strategically located on critical energy corridors • …is the leading investor in Caucasian and Central Asian Turkic Republics

  14. Consecutive High Growth Rates US$bn % GDP Fast growing economy 1970 US$ 13 bn 2000 US$ 200 bn 2011 US$ 776 bn Source: TURKSTAT

  15. Declining Budget Deficit & Net Public Debt Budget Balance / GDP % Source: TURKSTAT Net Public Debt / GDP % Source: TURKSTAT

  16. Increasing Trade Volumes 1970 US$ 1.5 bn 2000 US$ 81 bn 2011 US$ 382 bn

  17. Stronger FDI flows over US$20bnper year in 2005-2008 compared to only less than US$1bn historically

  18. Promising for Higher Growth Rates due to Low Penetration Levels Automotive Car ownership per ‘000 Finance Energy Loans + Deposits/ GDP, % Per capita consumption (toe)

  19. Penetration level in the leasing industry is low even compared to other emerging economies

  20. Turkish Leasing Industry in a Nutshell Financial Leasing can be applied in the form of domestic lease, cross - border lease. Currently No operational leasing. Main medium-long term equipment financing instrument, especially for SME’s. 31 companies of which 26 are member of the association. First 15 players dominate the market (mainly bank subsidiaries). 4 Participation 11 Investment Banks Contracts : Almost all full payout - mostly fixed interest rate Average term: 3 years Average growth rate: 35% in real terms. 2011 grovth 55% in US$ terms.

  21. Strong Growth Rates of the Past are expected to Return with New Legislation and Tax Reform Sharp decline due to tax changes coupled with global financial turmoil Strong growth rates: CAGR: 50.23% Another growth phase 42,963 6,197 6,712 19,373 24,250 28,581 37,239 51,519 19,878 10,186 11,195 Dec 2007-Jan 2012 5th Phase 1st Phase 2nd Phase 3rd Phase 4th Phase Jan 2006 – Dec 2007 June 1985 – June 2003 July 2003 – Dec 2005 current

  22. Draft Leasing Law WhatwillChange? • Operating Lease • Sale and Lease Back • Sub Leasing • Software Leasing • ============================================= • Supporting Changes • Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud). • No time restriction • The voluntary-based Leasing Association will become obligatory, covering all lessors and strengthening its status. • Registration of lease contract with the Association will be less bureaucratic compared to the current Notary Public application Higher volumes New Products Less Bureaucracy More Efficiency

  23. Future Prospects : Happily Ever After? • Penetration levels to increase • New financial productstheir growth in volumes. • Improved margins • Asset management and risk management will be crucial • Technology investments to create competitive advantages • Brokership will increase • Learning organizations will be formed • Specialization/Value Creation/ Innovation will differentiate the lessors. Benchmarking will be key.

  24. Thank you… Further questions cakpinar@efgleasing.com

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