UNIFIED LAW ON LEASING IS NECESSARY
Dragan Georgiev, Manager of HVB Leasing, to the BANKER WeeklyMr. Georgiev, HVB Leasing has been operating on the Bulgarian financial market for about two-three years. Meanwhile, it underwent certain changes. Which are its present owners?- HVB Leasing was registered in mid-October 2003 as a subsidiary of Bank Austria Creditanstalt Leasing and of Biochim Bank. Initially, the the Austrian company held 80% of the capital and 20% was in the hands of Biochim. Afterwards the stakes changed to 90% and 10% respectively. Being an Austrian subsidiary we have a number of advantages: we use the huge experience of our major shareholder and the resources owned by the financial group, incorporating two big banks: the Munich-based Hypovereinsbank and the Vienna-based Bank Austria Creditanstalt. The powerful financial consortium rates third or fourth in Europe and as its member we do not face any problems concerning refinancing. We can finance projects worth from BGN20,000-30,000 to BGN30MN. We have no ceiling practically. We have already closed a deal for technical equipment worth EUR1.5-2.5MN, and we have an inquiry about financing a project worth over EUR10MN. As a member of the financial group we can also use the contacts and opportunities of our colleagues in Europe, because Bank Austria Creditanstalt Leasing is a conglomerate of subsidiaries in all countries of the Central and Eastern Europe (CEE), except Macedonia and Albania. The Bank Austria Creditanstalt Leasing group is a market leader in the CEE.Do foreign or Bulgarian companies predominate among your clients? Which are you main customers?- We do not distinguish between big and small, foreign and Bulgarian partners. For us they are all clients. In our portfolio 80% are domestic firms and 20% are those with foreign participation. We are working mostly with corporate clients from the so-called medium-sized sector. Only when leasing vehicles we close contracts with natural persons as well. Our suppliers, however, are mostly foreign companies, such as Siemens, DaimlerChrysler, Volkswagen, Schmidt Cargo, Mann, etc. We are constantly updating their list on our INTERNET website. Do you effect all kinds of leasing deals or just a certain type?- We finance everything which is not forbidden by law and is intended for useful production activities. But we do not lease household electric appliances, video and audio players, TV sets, etc. The main deals are for leasing of vehicles, machines, technological equipment, big transport machines, as well as real estate, e.g. large-sized financing of office buildings, production workshops, automobile repair centres, industrial zones of various purposes (trade, storage, production, etc.). We financed the construction of the so-called Soravia business centre at boulevard Tsar Osvoboditel in Sofia, which is already working with elite tenants. We hope our business in the construction and real estate sectors will be more dynamic this year. We offer mainly financial leasing, which accounts for 95% of our portfolio, and operative leasing that we use predominantly for vehicles, machines and technological equipment, is just a small share.Which are the most important conditions in leasing agreements?- Leasing of movable goods has several main parameters that are standard and the term of contracts is between two and five years. The client pays monthly instalments which is typical for the leasing schemes. We require 20% own participation of the lessee and the standard fees for closing a contract is between 1% and 2 per cent. The annual interest rate varies between 8% and 12 per cent. The total price of the leasing contract is the increase for the entire term of the deal as compared to the initial purchase price of the asset. And this is the percentage by which the leasing is more expensive to the client. Are clients aware of the advantages of leasing as compared to a bank loan?- Pitifully, firms still do not seem to realize that. Leasing is more advantageous mostly because the asset is not entered in the firms' balance sheet as it belongs to the leasing company. But if it is purchased with a credit from a bank it becomes property of the firm and it has to be booked. With the leasing deal the company acquires it in the end of the contract's term, at that at a lower value and is booked on the basis of the last payment which the client owns to the lessor. Thus, the balance sheet is significantly relieved which is an important advantage. With the date of Bulgaria's accession to the EU coming near this factor will be becoming increasingly important to the entrepreneurs. Another advantage of the leasing is the fact that the leased asset itself is a pledge, while banks are required by legislative regulations to demand at least 125%, and in some cases 150-160% pledge, which creates difficulties to small and medium-sized firms. Principally, the asset is a pledge for the leasing deal. Do you demand any additional guarantee?- As a lessor we demand an additional pledge but it is much lower than that required by banks. Most frequently we use instruments such as a guarantee from a third person, a special pledge of own property, a promissory note signed by the lessee, a registration of the leasing contract in the register of special pledges, etc. The value of the pledge and its form are agreed individually for each client. Our terms depend on the rating of the lessee and the subject of the deal. For instance, if we have to sell the asset, it would be easier for us to sell a Mann vehicle than a specialized machine. What is your market share in the different leasing segments?- We have strong market positions in auto leasing. We work with almost all well-known and official importers of new cars in the country. We partner with second-hand car dealers. We lease second-hand vehicles, but only if they pass through the respective official importers. We have good positions in the printing industry, in machine-building, in transport and in the road construction equipment. We also have fair positions on the foods and drinks market segment, in the tailoring industry, and in IT equipment. Our leasing portfolio is about EUR39MN. These are the active contracts by december 31, 2004, i.e. - for a year and a few moths since we have been operating on the Bulgarian market. Half of them are for leasing of machines and production equipment, and about 50% are for cars and light-duty vehicles below 3.5 tons. Real estate leasing is still rather unfamiliar on the market, but we hope to raise our market share in that sphere as well. Do you think leasing activities in Bulgaria should be legislatively regulated and in what way?- Legislative regulations of leasing are quite chaotic and scattered in multiple documents at the present stage, which impedes the normal operation of leasing companies. This is my stance. The market should be regulated. It is another question how it will be done and which will be the regulatory body, where it will stand in the structure of government, what functions and tasks it will have, and which institution it will be subordinated to. Perhaps this role should be undertaken by the Finance Supervision Commission because leasing companies are engaged in non-banking financing. Regulations are also necessary because a number of firms that speculate with that service will be controlled in that way. Such a body will also be responsible for the business statistics. In Austria, Germany and Denmark, as well as in many CEE countries, there are institutions which gather data and thoroughly study the market. Thus, each company knows what market share it has and may plan its development. Presently, we are in a difficulty to answer our owners in Vienna when they ask us which market position we occupy because we have no basis for comparison. We are constantly forced to fight with half-baked tax laws. For instance, when we have to lease cars it is not acknowledged as our innate activity and we have to make various accounting operations in order to collect VAT. The non-precise definition of financial and operative leasing in the Commercial Code, in the Corporate Income Taxation Act, in the Accounting Act, and in other legislative acts, also creates difficulties for us. We have to argue with taxation authorities as the terms of operative and financial leasing are to be interpreted. There are such absurd definitions in legislation as that: everything that is not a financial leasing is operative leasing?! There are some ambiguities in the International Accounting Standards, too, that we interpret with the help of consulting firms. That is why it is imperative to draft an unified leasing act, as soon as possible. Our Austrian colleagues say that Moldova has the best law on leasing.