Government policy could prompt
a wave of consolidation in the country’s leasing
industry.
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The Hungarian leasing market is facing
a potentially devastating challenge from a radical new financial
regime that could see tax levied on revenues.
The country’s government has said the banking
industry must pay €800m in extra tax to repair the fiscal position
of the budget.
Gábor Lévai, head of the Hungarian Leasing
Association, said: “It will not be tax after profit but a tax based
on turnover, or something similar depending on the type of
financial institution.”
The levy will be imposed on banks, lessors and
other financial institutions.
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By GlobalDataThe Hungarian leasing market is populated by
international names like ING Lease, BNP Paribas Lease Group, and SG
Equipment Finance, with about 40 lessors operating in the country.
Leasing has been an established form of financing for 20 years.
Lévai said lessors typically enjoyed “steady
double-digit growth every year”, until the market took a 60%
nosedive in 2009. It shrank a further 40% in the first half of
2010.
If the stringent new banking levy is
implemented, lessors would be among companies facing a €45m hike in
tax in 2010, or 6% of net interest and fee income, Lévai said.
The measures would be temporary – to last a
maximum of three years – but because lessors suffered such
devastating losses in 2009 following the recession and “the
collapse of investment in Hungary”, according to Lévai, they could
be particularly hard-hit.
He fears the market could be severely damaged
before the three-year period is out, as it struggles to return to
profitability.
The Hungarian association is
attempting to soften the blow by lobbying the government to
introduce new leasing-friendly tax breaks.
“We do not have many tools to protect
the market. We’re trying to negotiate with the new government about
some tax advantages for leasing products, and use of leasing in the
case of EU subsidies,” Lévai said.
There is some confusion over how long the levy
will be in place, as well as how much the total cost will be to
financial institutions. Emiel van Onzenoort, De Lage Landen (DLL)
country manager for Hungary and CFO for Central and Eastern Europe,
said he believes it will last no more than two years.
Future consolidation
Reports on the cost of the levy have varied;
some said it will be less than €700m, others have said it could be
€400m, although few have put it as high as €800m, as Lévai
said.
Whatever the total cost or duration of the new
levy, it is likely to have a negative impact on the customer as
companies seek to recoup their loss, according to van
Onzenoort.
He said: “The government has said customers
cannot be charged more because of the tax, but eventually companies
will charge it to the end user. As a consequence, it will slow down
GDP development in a country which needs significant GDP
growth.”
DLL, a newcomer to the market following its
acquisition of Siemens Financial Services’ (SFS) Hungarian arm in
April 2008, is relatively well protected according to van
Onzenoort, thanks to SFS’ sturdy portfolio and a 400% increase in
new business in 2009.
“We’re looking at a 60% increase in 2010 – from
that perspective, we’re doing relatively well in Hungary,” he
said.
Van Onzenoort said the impact on smaller
companies could be devastating and many will “disappear. As a
consequence, consolidation will happen in the market and customers
will have less choice.”
New volumes in the Hungarian leasing market
were €4.8bn in 2007. While business held up in 2008, in 2009 new
volumes dropped to €1.7bn. Car finance was worst hit, although it
was already down before the recession.
Difficult market
SG Equipment Finance (SGEF) outperformed the
market, despite a 50% drop in new business volumes in 2009,
according to SGEF country head for Hungary, Alfred Hagn. He
admitted it had been “difficult” in 2009, adding that the company
has already taken into consideration the possible effect the new
tax could have, but remained positive on the company’s future.
“We’re still profitable, so for us, it won’t be
such a problem. It’s more dramatic for leasing companies which are
not profitable and are making losses because they will have to pay
the tax out of their equity,” Hagn said.
He is concerned that if implemented, the
measures could remain in place for many years.
“We know that if a tax is introduced, it’s hard
for the government to reduce it or get rid of it. I doubt they will
reduce the tax in a short period,” he said.
However SGEF remains bullish about its position
in the country, claiming that its partnering with vendors has
helped to protect it.
Hungarian Prime Minister Viktor Orban is under
pressure from outside the country to scrap the proposals.
The International Monetary Fund (IMF) and the
EU have both rejected proposals to control the country’s budget
deficit, including the tax on financial institutions.
Talks between the IMF and the Hungarian
government failed to find “enough common ground”. The IMF believes
that the levy could have an adverse effect on lending and
growth.
