The Romanian leasing market was created after the end of the soviet occupation in 1989, and boomed in the middle of the 2000s, following expansion in the country’s banking sector.
A number of international banking groups entered the market at the beginning of the millennium, acknowledging the business opportunity. The country was witnessing rapid economic growth and had a large unbanked population. Many banks introduced the ‘universal banking model’ and established leasing divisions.
Go deeper with GlobalData
"The Romanian leasing market had a positive evolution in terms of profitability up to 2008, directly connected to the evolution of the Romanian economy, and this was probably the main reason for all players to invest here," says Gabriel Mihai, head of corporate at UniCredit Leasing Romania.
The heavy investment in the sector led to new leasing volumes rising to 4.8bn in 2008. However, the evolution of the market was soon stopped by the economic crisis, which caused volumes to shrink to 1.3bn in 2009.
"In 2008 we were proud to register the highest year-on-year increase in Europe, which was 72%. During the second half of 2008, the impact of the economic crisis started to become evident in the market. As a result, in 2009 Romania had the biggest year-on-year decline in Europe, which was 73%," says Adriana Ahciarliu secretary general at financial companies association ALB Romania.
Since then the market has been rather stable, oscillating around the 2009 levels. However, the 16% year-on-year increase in new leasing volumes in the first half of 2015 has given positive signs for the future. The total new leasing volumes for the first half of the year stood at 768.8m.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe growth has been mainly driven by the 18% year-on-year rise in vehicle leasing volumes, which reached 596.1, while equipment leasing rose 11% year-on-year to 153.9m. On the other hand, real estate leasing volumes fell by 12% to 18.9m.
"There is a tendency for lessors to focus on those asset categories with residual values which offer the lowest risk, like the financing of transportation," says Ahciarliu.
Vehicle leasing
Despite fluctuations in volumes since 2011, vehicle leasing has increased its share in the total leasing market from 60% to 77.5%.
Mihai says: "The transportation sector has been a growth driver for leasing in Romania in the past few years. The increase in trade between Romania and other EU countries – mainly Germany and Italy – together with the low labour cost for Romanian drivers have attracted numerous investments in this sector from local and international companies.
"Also, the financial discipline of the companies in the sector has improved recently, encouraging the leasing companies to finance significant volumes of trucks and trailers."
Between 2012 and 2015 the share of heavy commercial vehicles in the vehicle leasing market grew from 26% to 41%, while passenger cars’ share dropped from 61% to 47%.
General Director at BRD Sogelease Jan Kotik says that Romania currently has a comparative advantage on the cost of leasing a truck against other EU countries, but characterises it as "temporary".
Despite the decrease in market share, the passenger car segment remains strong mainly due to government incentives. The Romanian government has launched a program called My First Car, which partially covers the cost of financing for those individuals who buy their first car and are under the age of 35.
Another reason behind the strong demand for passenger cars has been the low rates charged by lessors. The increased competition in the market among finance companies has affected pricing.
"When I joined the company in December 2013, the client’s rate for the passenger car was 6.5%. At the end of last year it stood at 4.5%," says Kotik.
The majority of vehicle leases are carried out through financial leasing, but operating leasing is becoming more popular.
Ahciarliu says: "Operational leasing has a short history in Romania, as it became a standardised product on the market five or six years ago. Maybe initially the market was not prepared for understanding the incentives that operational leasing was offering."
The rise in the popularity of operational leasing has boosted the fleet leasing market, which has been growing substantially above the GDP growth rate. In the first half of 2015 the market grew by 16% compared to the same period last year. From 2011 onwards – apart from 2013 – the fleet leasing market in Romania has been recording double-digit growth.
Bogdan Apahidean, chief executive officer at LeasePlan Romania explains: "The reason for this trend is that more companies and entrepreneurs are discovering the advantages of operational leasing : no down payment, predictable and transparent cost structure.
"The first clients were international companies operating in Romania, but we now see SMEs interested in this product as well as companies with fleets of LCVs. Fuelled by the economic stability, the market transactions have constantly increased and so did the need for business-to-business services, such as operating lease."
Apahidean says that players entering the market can benefit from the fact that the market is still young, although he highlighted that competition has grown and is exerting pressure on prices.
"As new foreign investors are arriving in Romania and the demand for operational leasing is on the rise, we expect we will have a market of around 100,000 units at the end of this decade," says Apahidean.
Equipment leasing
Over the past two years the equipment leasing market in Romania has been witnessing growth in new leasing volumes, which reached 153.9m in H1 2015. The largest segment of the equipment leasing market is agriculture, which accounted for 27% of the market in the first half of 2015. The agricultural market has grown following the country’s EU accession, as significant funds have been invested to support local investments in the sector.
The leasing industry will be able to benefit from future provision of EU funds to the sector, as an agreement between ALB and the Romanian ministry of agriculture made financial leasing an eligible co-financing source to the EU funds for the agribusiness.
Commenting on the agreement, Ahciarliu says: "It is a response that we have received directly from the European Commission so we have signed a protocol with the Minister of Agriculture to include financial leasing in co-financing the agribusiness. This is a real incentive both for the Romanian economy and financial leasing."
The construction equipment was the second most popular segment of the market, responsible for 22% of the total equipment finance volumes in Romania in H1 2015, up from 14% a year before.
"The increase was supported by the revival of the real estate residential market which was influenced by a government program called My First House. This program comes with subventions from the state for credit or leasing of residential properties for the young families up to 35 years old who are buying their first house," explains Ahciarliu.
Medical equipment’s share of the total equipment finance market doubled year-on-year, reaching 10% in the first six months of 2015. The rise in demand for medical equipment finance was mainly from the private sector rather than the public sector.
Ahciarliu believes that this segment will grow in the near future. "The government made active efforts to enhance the health system by introducing the health card, which is compulsory for each citizen to have. This will improve the financial service’s confidence in the area and I believe it will result in more investors in the domain. In addition, the new changes to the fiscal codes are offering higher deduction for the medical private health insurance which may support the development of the private health system," she says.
On the other hand, there has been a fall in the volumes of energy and wood processing equipment finance over the past few years. The finance of green energy fell significantly after subsidies stopped in 2014, while the wood processing market has been affected by stricter rules and regulation.
Another interesting trend in the Romanian equipment leasing market is the rise in demand for second-hand equipment, which doubled year-on-year from 9% to 18% in H1 2015.
Competition in the market
The financial crisis has significantly reduced the number of companies in the market, as many small independent companies left the market after 2008. As a result a small number of firms are now controlling the market.
"The top 10 leasing companies concentrated 84% of the market in 2014, while in 2007 the share of the top 10 companies was less than 50%," says Ahciarliu.
Of the companies currently operating in the Romanian leasing market, 81% are bank subsidiaries, 15% are captives and only 4% are independent. The market is dominated by international companies, with the number of local companies reducing over time.
"You can see the same picture anywhere in Eastern Europe – in Poland, the Czech Republic, Hungary, Romania, Bulgaria – most players are international because any successful local leasing company would be bought by them," said Kotik.
Romania has attracted a larger number of global lessors than any other country in the Balkan region.
Ahciarliu says that the Romanian market is attractive for international lessors because the level of taxes is below the European average. LeasePlan’s Apahidean cites the country’s positive economic performance as another factor which has been influencing lessors’ decision to enter the market.
"Romania is a dynamic developing country that is on a growing path for the last three years," said Apahidean.
Future looks bright
The European Commission estimates that Romania’s GDP will increase by 2.8% in 2015 and 3.3% in 2016.
"Accelerating domestic demand, boosted by cuts in indirect taxation, as well as a benign external environment, are expected to lift real GDP growth to 3.3% in 2016… Private investment is likely to continue growing over the forecast horizon, supported by lower borrowing costs, a tax exemption on reinvested profits, robust economic growth prospects, and economic sentiment levels which are at a seven-year-high," the European Commission wrote.
Kotik expects the leasing market to grow at a substantially higher rate than GDP. "I expect the overall market growth to be around 15% this year and I expect 10-20% growth in the next few years, especially if various infrastructure projects go forward," he says.
Romania has a number of big infrastructure projects which are waiting to be developed and the public-private partnership (PPP) currently being debated in the Romanian parliament could boost demand for infrastructure projects further.
Mihai believes positive macroeconomic conditions and increased investment can trigger the growth of the leasing market: "Romania has had a positive economic performance lately and a stable macroeconomic structure – low deficits, low public debt.
There is also a significant need for investment both in public and private sector, so we can see a strong demand for financing in the next years.
"Leasing can perform well in its traditional areas – automotive, transportation, construction, agriculture – and develop new areas of expertise together with vendors or sectorial organizations. If you also consider that the low interest rate environment in Europe is favouring investments, the general outlook can be considered as positive."
Mihai adds that the future growth of the leasing market will also depend on the way leasing companies communicate their products.
"Leasing could perform better and increase its share in the financing mix of companies but in order to do that the market players have to improve the value perception of the customers to become more appealing, easier to use. Because alternatives to leasing are already present in the market and especially those that today sit outside the regulators’ observance will have strong drive to improvement and will push the market standards," he explains.
Another factor which could positively affect the market is an article likely to be part of the new fiscal code which will recognise financial leasing as an investment with no obligation for profit tax for production equipment acquisitions.
Ahciarliu is optimistic that the market can return to the volumes of 2008 but believes that it will take at least a decade.
"It took the Romanian market 15 years to reach that level, and only 3 years of financial crisis to drop volumes down to levels witnessed at its beginning. I think it will take at least 10 years to reach that level , but it is reachable," says Ahciarliu and adds: "Of course, it all depends on economic and political realities of the region."
