A buoyant economy has directly benefitted the lease industry in Romania, although a competition authority investigation into the activities of a number of market participants is an unwelcome cloud on the horizon, writes Paul Golden.
In March, the IMF noted that the Romanian economy is growing strongly, unemployment has fallen to a record low and the financial sector is improving.
Romanian banks are well capitalised and liquid, profitability is increasing and non-performing loans declined to 6.4% of total loans in December 2017, close to the EU average.
Economic growth surged to 7% in 2017 – the highest in the EU – boosted by domestic consumption on the back of a multi-year fiscal expansion and minimum wage hikes. A tight labour market is seeing private sector wages growing at double-digit rates.
Growth is expected to decelerate from last year’s high level due to low public investment, slow progress on structural reforms and tightening financial conditions. However, the IMF still projects GDP growth to be about 5% this year and to settle at around approximately 3% over the medium term.
Based on data from Asociația Societăților Financiare din România (ALB) – the Romanian association of financial institutions – the Romanian leasing market was worth approximately €2.2bn last year, an increase of 16% on the figure for 2016.
By asset type, the market breaks down roughly into passenger cars and light commercial vehicles (38%), heavy commercial vehicles (34%), equipment (25%) and real estate.
Bogdan Speteanu, CEO of BCR Leasing, notes that 2017 was the fifth consecutive year in which lease volumes grew, although he also recognises that total volumes last year were still less than half the figure reached before the global financial crisis started to bite.
The strong domestic economy has enabled most companies to improve profitability and cash flows, allowing for much-improved debt servicing and enabling the leasing market – and the wider financial sector – to report historically low levels of non-performing exposures.
That is the view of Borut Vujčič, CEO of BRD Sogelease, who tempers this positive assessment of the Romanian leasing market’s health with the caution that observers need to take into consideration the high debt leverage in companies’ balance sheets, which may generate problems once consumption-driven growth fades away.
“This is why we are very keen on maintaining a prudential, balanced approach in the market to ensure a sustainable capturing of this growth,” he says.
The local leasing market has grown based on the recovery of automotive retail sales, and strong competition has forced players to assess their service model to ensure an improved customer experience, continues Vujčič.
“This can only be beneficial in the long run for our sector because it can promote leasing as a reliable, effective solution among other solutions available in the market,” he adds.
“Customers are more and more knowledgeable, and we need to become even more professional in the service that we provide.”
Asked whether BRD Sogelease has been satisfied with recent market growth, Vujčič acknowledges that it is always easier to run a leasing business in a growth environment “as long as you keep in mind the long-term effect of your actions”.
He adds: “We are happy with the growing demand for leasing, and we believe that the potential of the product in the Romanian market is even higher than the current market level.”
The market is dominated by bank-owned and captive lessors, with only a few independently owned firms commanding significant market share, says Vujčič. “This pattern is visible now over a long period of time, and we would not expect a significant structural change in the short to medium term as competition is strong and all segments are well covered.”
In terms of sectoral trends, he refers to the stable growth of operating lease for passenger cars, as consumers increasingly consider the total cost of ownership as the most important decision factor.
“In addition to this, the issues related to diesel engines and the shift to hybrid and electric cars have increased the uncertainties related to the future value of the assets, so customers are happy to leave the lessors to deal with these issues,” he says.
On the other hand, construction is a sector that is underperforming because, in the absence of public investments in major infrastructure works, demand for specific equipment remains at a very low level, adds Vujčič.
BRD Sogelease, part of one of the largest banking groups in Romania, BRD – Société Générale, is currently reviewing its service model in search of further improvements to customer service. “The digitisation of the business environment offers some new perspectives for the whole financial services sector, and we need to adapt our service and remain relevant in this new context,” he adds.
BCR Leasing is confident that mobility as a service will increase in importance, not only for corporate customers but also for small and medium-sized businesses and retail clients.
“This prompted us to set up our operating lease subsidiary, BCR Fleet Management, and experiment with new concepts,” says Speteanu. “Last year we launched BCR eGO in Bucharest, the first electric car-sharing service in Romania.”
While the Romanian leasing market has experienced encouraging growth over recent years, most market participants share the opinion of the BRD Sogelease CEO that there is plenty of spare capacity in the industry.
“We consider that a 10-15% year-on-year increase is a sustainable level over the mid- to long-term in light of the growth of the Romanian economy,” says Speteanu.
“If we compare the value of the leasing market to nominal GDP, it currently represents less than 2% of GDP, which is a further sign that there is still room for growth. We expect the market to expand by around 10% in 2018.”
While loans are still the most popular product, financial lease products have experienced encouraging growth over recent years, mainly due to a change in customer behaviour explains Lionel Piquer, CEO of BNP Paribas Leasing Solutions Romania.
“Being a market focused on vehicle leasing – which accounts for more than three quarters of total market activity – the best-performing segments are the passenger cars sector (up 24% in 2017) and light commercial vehicles, which expanded by 27% compared to 2016,” he says. “The leasing of agricultural equipment also performed particularly well during 2017.”
Piquer is confident that there is still room for improvement in order for the leasing market to achieve its full potential, especially for professional equipment leasing such as IT and medical.
He hopes the launch of Lease-Offer, a new web interface on which its partners can independently send a financial request, receive an answer online and follow the progress of the application, will be an accelerator of business for both BNP Paribas Leasing Solutions Romania and its partners.
In June 2017 the European Bank for Reconstruction and Development (EBRD) announced that it had extended a €20m loan to Banca Transilvania (BT) Leasing to broaden access to finance for Romanian micro, small and medium-sized enterprises, especially those outside large metropolitan areas. The new financing is the EBRD’s fourth loan for the firm, with total funding reaching €45m.
In November 2017, BT confirmed the acquisition of ERB Leasing, a fully owned Romanian subsidiary of Greece’s Eurobank providing asset finance products for real estate, equipment and vehicles.
According to Asociaţia Societăţilor de Leasing Operaţional (ASLO) – the Romanian association of operational leasing companies – operational leasing volumes rose by 11% between the end of the third quarter of 2016 and the same period last year, accounting for 15% of all new vehicles registered.
Bogdan Apahidean, managing director of LeasePlan Romania, says the trend was sustained through the whole of last year, and observes that the operating lease market has been enjoying steady growth, even during a period when broader automotive sales have proved challenging. As of 2017, the total operating lease market accounted for around 65,000 vehicles under administration.
“The most significant developments in the market over the last 24 months include growth of around 8% during 2017 compared to the previous year,” he says, adding that the firm has introduced a number of new initiatives to the market, particularly in relation to short-term rentals and car sharing, as well as improving the digital experience for drivers and fleet managers.
Apahidean explains that operating leases are still underdeveloped in Romania compared to financial leasing or ownership. “Growth is predominantly fuelled by large multinational clients and local corporates, although the small and medium-sized business segment is also a focus for the near future,” he says.
Asked how the operating market breaks down between bank-owned, independent and manufacturer-owned lessors in Romania, and whether this balance has changed in recent years, he suggests that bank-controlled lessors are the dominant force with more than half (54%) of the market, followed by independent lessors with 38% and manufacturer-owned lessors with just 8%.
This split has been reinforced in recent years, with the independent lessors growing their share of the market by 21% since 2015, and their bank-owned rivals adding 16% to their share over the same period.
While the Romanian government has not taken any direct action to support the lease industry, Apahidean acknowledges that lessors have benefitted indirectly from state support for the adoption of electric mobility in the form of subsidies of up to €10,000 for electric vehicles and up to €4,500 for plug-in hybrid powertrains.
“We are using all opportunities to convey the benefits of operating lease to our prospects and grow the business,” he adds.
“For example, we are taking a leadership role in the transition to alternative powertrains, and we recently delivered a presentation on the transition to electric mobility via operating leasing.”
Speteanu suggests that a number of draft laws will have a negative effect on the overall financial industry, including leasing – for example, the proposed change that will see the leasing contract lose its executor title.
However, based on the results of 2017 and the fact that Romania is going through a period of economic growth, an increase of approximately 10% in the domestic lease market is expected in 2018, according to the ALB.
“Everyone expects the Romanian economy to grow at high rate in 2018, and most of the sectors that drive demand for leasing are in a positive mood – automotive retail, transportation, agriculture – so we would expect this to translate into a good year for our business,” says Vujčič.
An unknown factor in any assessment of the lease market in Romania over the next few years is the outcome of unannounced inspections of the headquarters of leasing companies and professional associations carried out by the Competition Council last December.
The raids were carried out as part of investigations opened by the competition authority relating to the operational and financial leasing markets, and included a number of banks as well as ASLO and ALB.
The first investigation relates to possible exchanges of commercially sensitive information between competing companies in financial leasing and consumer credit.
In a statement, Bogdan Chiriţoiu, president of the Competition Council, stated that the organisation had been preparing the investigation for some time, and referred to information provided in August 2017 by one of the parties under investigation, which has applied for leniency in exchange for its co-operation. Companies that co-operate with the competition authority under the leniency programme may obtain immunity from fines or a substantial reduction in fines.
The second investigation also concerns the possible co-ordination of commercial policies by price fixing and/or market sharing through the exchange of sensitive information between companies active in the market for the operating leasing and related services.
The Competition Council has made no further comment on its investigation.