On June 10, a round table was held on the topic: “Does Ukraine need leasing for the population?”, Organized by the Financial Club news agency.
The event was attended by representatives of leasing divisions of Ukrainian banks, as well as the head of the Ukrainian Union of Lessors.
The participants of the discussion emphasized the relatively insignificant share of leasing for individuals in comparison with its total volume, but at the same time, good prospects for the development of this market segment.
Currently, out of 10 banks that provide leasing services, only 3-4 work with individuals. The same applies to non-bank leasing companies – the vast majority of them work with a corporate client.
The main subject of leasing financing of citizens are cars. Leasing of real estate and other segments is practically undeveloped. Speakers noted that obstacles to the active development of individual financing include the specifics of the Ukrainian mentality, the state’s exclusion from stimulating leasing financing of green cars and other innovative technologies, unjust court decisions and misinterpretation of legislation, or significant gaps.
Maryna Masich, director of the Ukrainian Union of Lessors, pointed out that the development of this segment is also hampered by the fact that potential consumers know very little about leasing and therefore are afraid. Also a significant role is played by the specifics of the mentality: the desire to be the owner, not just the user throughout the term of the contract. While in Europe, on the contrary, they prefer to use rather than own (operational leasing is common) – to use and constantly update cars and equipment has long been common and habitual.
In addition to the problem of notarization, the speaker also noted the negative impact on the leasing segment for individuals of a series of unjust decisions, which were widespread several years ago and led to large losses of leasing companies. We are talking about the recognition of contracts null and void on formal grounds (although the parties have been fulfilling their obligations for several years) and bilateral restitution as a consequence of such recognition. This meant that the company received back well-used equipment, and the customer was forced to return all payments for all years of use of the car, indexed at the current rate. So it turned out that free use was legalized.
Also, the factor of lack of protection of leasing legal relations by instruments of criminal proceedings and judicial proceedings has a very unfavorable effect. While mortgage legal relations have such protection.
Marina Masich also commented on the state of the leasing market in both segments (bank / non-bank).
Thus, as for the non-banking leasing market, namely it forms the main part of the national portfolio, it shows steady growth for several years in a row and in 2019 the volume of new business reached UAH 26 billion. (+ 18%).
The portfolio of leasing agreements in the banking sector grew significantly, crossing the mark of UAH 10 billion, but new business fell by 36% and amounted to only UAH 7.8 billion. As for the share of individuals in these agreements, although it is insignificant, it tends to increase. Thus, if in 2018 individuals accounted for only 5% of new business, in 2019 – already 12%
The speakers of the round table noted that the growth of the market as a whole was caused by a number of benefits of leasing as a tool for financing businesses and individuals. Among them: the speed of decision-making and obtaining property, fewer documents, loyalty to a potential borrower. Compared to a loan, leasing also benefits from being a comprehensive service, while a loan only gives money. It is also important that the leasing company has much more leverage over the insurance company in the event of an insured event than an individual, as it is often a corporate client, and therefore obtain insurance of their property from the lessor is much more profitable. There are a number of tax benefits for SPDs and legal entities.
The participants of the round table stressed that for the active development of the leasing market and the retail financing market, in particular, it is necessary to raise awareness of the population and business about the benefits and advantages of leasing.
It is essential to have a common base of potential borrowers for the entire leasing and credit markets. Volodymyr Rudenko, FUIB’s Head of Financial Leasing , said that having such a base would make it easier to obtain loans and significantly reduce potential risks.
Igor Hrytsenko, Head of Leasing Operations Department of TAScombank, believes that it is extremely necessary to change the Regulator’s approach to the amount of provisions for leasing agreements. Currently, leasing companies are forced to reserve funds similarly to loans. Given that leasing is much less risky and comparable to a bank loan (the share of troubled contracts is only 2%), such provisioning is excessive and harmful to the industry.
The participants of the event also discussed the problems of the NBU Resolution №351, about which they have repeatedly addressed the Regulator. In particular, we are talking about the request of banks and leasing companies to improve the requirements of the Resolution regarding the unfounded application of the standard of increased credit risks to the leasing company as a borrower, taking into account the peculiarities of its accounting as a financial intermediary. Experts once again publicly asked the NBU to return to resolving this issue.
Igor Lazorenko, director of the legal department of Alfa-Leasing Ukraine, said that a significant problem is the possibility of applying the provisions of the Law “On Consumer Protection” to leasing agreements. This, in particular, allows unscrupulous borrowers to return the leased car after 14 days of use, while regaining the full amount of money paid for the lease of the car. There were cases when the court terminated the leasing agreements on the grounds that they did not comply with the provisions of this Law.
Other examples of legal obstacles are the alleged need for notarization of leasing agreements. And although the relevant law does not require it, at the same time the case law has followed the path of mandatory notarization, so operators are forced to resort to it. In addition to a number of inconveniences, it also entails a significant increase in the costs of the lessee, without giving him any advantages. Discriminatory is the cost of a certificate of the lease agreement – 1% of the price of the subject, while the certificate of collateral loan – only 0.01%.
Many of these problems need to be addressed with the adoption of a new version of the Law on Financial Leasing №1111, which has already passed the first reading and is preparing for the second.
According to Marina Masich, the best method to promote leasing would be to create, on the one hand, incentives to use leasing when purchasing cars, equipment, housing, etc. On the other hand, the introduction of a state or municipal system of interest compensation on lease payments, similar to the one that works today on loans. For example, Lviv region already has such a program: it compensates its farmers for part of the lease payments. If this practice is applied at the national level, it could lead, according to our estimates, to an increase in the purchase of such equipment to UAH 2 billion.
Other possible measures aimed at leasing development include encouraging the financing of innovative technologies, green energy and transport, accelerated depreciation for the real sector, and, according to foreign experience, the development of a partial compensation program for individuals to lease their first home or first car.