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Analysis of the Bulgarian Leasing Market H1 2018

03.09.2018 Written by лизинг брокер

On 15.08.2018 the Bulgarian National Bank published the quarterly data for the Leasing Market in Bulgaria for Q2 2018. You can review some of the most interesting findings from the published data:

In Brief

The leasing market in Bulgaria continues its recovery from the financial crisis in 2008-2009. Despite ten-year period, it is now possible to say that the recovery is sustainable, although new business, lease portfolio and lease penetration are yet far from the pre-crisis levels. Financial leasing remains dominant on the Bulgarian leasing market. Operational leasing, albeit growing quickly, is struggling to reach the five percent barrier of the market. Leasing penetration, although at average European levels, does not suggest the existence of a dynamically developing economy. The same is implied by the commodity structure of the leasing portfolio and the new business in the first half of 2018. Notes of positivism can be found in the faster growth of the New Business in the segment of “Machinery and Industrial Equipment”, the increasing maturity of leverage borrowed by the leasing companies, and the rapid increase in lease leakage in 2018. Here are the details:

 The Leasing Portfolio in Q2 2018

  • The leasing portfolio is growing by 6.22% in Q2 2018 compared with Q1 2018 and reached BGN 3 861 762 000;
  • At the end of Q2 2018, the leasing portfolio continued its come-back, reaching levels close to these of Q2 2011 of BGN 3.633 bln. or about EUR 1,9 bln. Sadly these levels fall quite short of the record year for Bulgaria 2008 when the lease portfolio reached EUR 3 bln;

  • The growth of the leasing portfolio (receivables) in Q2 2018 continues the upward trend started in the first quarter of 2016. After the tenth consecutive quarter of growth, the recovery of the lease portfolio can now be defined as lasting;

  • The average quarterly growth rate of the lease portfolio from early 2016 to the end of the second quarter of 2018 is 2.41%. The increase in Q2 2018 significantly outstrips the average, reaching 6.22%. This value is significantly higher than the traditionally strong second quarters of 2015 and 2016 which enjoyed growth of about 4.20%;
  • It is interesting that the leasing portfolio growth of BGN 257 million in the first half of 2018 exceeds that for the whole 2016 (BGN 226M) and is almost the same as the whole of the year 2017 (BGN 290M). Therefore, we can expect that 2018 will be record for the recovery of the Bulgarian leasing portfolio over the last 10 years with an increase in the leasing portfolio exceeding BGN 400M for the year.

Leasing Portfolio for the First Half of the Year

  • Vehicles (commercial and cars) dominate the leasing portfolio, accounting for 70% of the total leasing portfolio (operating and finance leases):

  • The growth of the Bulgarian leasing portfolio for the six-month period of 2018 is 7.13% y/y. The contributors to this increase are the Financial leasing portfolio (which is still predominant for Bulgaria) with a grothw of 63% and the impressive 16.52% growth of the modest portfolio of operating leasing;
  • The big losers for the finance lease portfolio were “Computers and Electronic Equipment” and “Real Estate”, whose portfolio dropped by 18.97% and 4.28%, respectively. It may me expected that “Computers and Electronic Equipment” will shrink until complete disappearance in the beginning of 2019, after the introduction of the changes in IFRS 16. As for the “Real Estate” – it is when we see a portfolio growth in this segment that we may say that we have overcome the effects of the Crisis completely;
  • The big winner is the operating lease portfolio, which is rising for a consecutive year (since 2015), with a double digit growth of 16.52% for the six months and reached BGN 210M. It is dominated by the two typical segments – commercial vehicles and cars. Again, we can say that Bulgaria has finally overcome the effects of the crisis when the segment of operating leases of “Machinery and Equipment” stoppes declining and markes some growth (not the case in this quarter):

Leasing Penetration

  • The penetration of leasing in the Bulgarian economy (new leasing business in relation to GDP) is slowly increasing. At the end of the first half-year, the leasing penetration was 1.83%, and if the growth in the first half continues over the second half of the year, it will increase to96%. This places the country among the average values ​​for Europe in the neighborhood of Germany, Norway, Portugal and Switzerland. The trend of a smooth rise in the leasing penetration began in 2015, following the sharp downturn and subsequent turbulence of the indicator values ​​following the 2008 Global Crisis.

  • The penetration of leasing in the Bulgarian economy is still far from the record 4-5% achieved in 2007 and 2008. Although penetration rates are similar to these in a number of European countries, this indicator illustrates exactly the interest in investing and economic growth in a given country. Despite the slight rise, the indicator demonstrates average investment activity in the country. Normal levels for a fast-growing and economy will be over 2.5%. A note of optimism can be found in the increasing rate of growth – from 6.24% in 2017 to 12.56% in 2018 (if assumptions about annual levels are confirmed).
  • The penetration of the leasing market, the growth of the portfolio and the development of the economy are in close correlation with each other. The Bulgarian leasing market is a good illustration:

New Leasing Business – annual comparison

  • At the end of the second quarter, we have statistics for the first half of 2018. To get comparable estimates for 2018, we’re doubling the data available for the first half:

  • Forecast: If the trend from the first half of the year continues over the second half, the growth of the new business for 2018 will be 16.52% and will reach BGN 2 billion for the first time since 2008.

 

New Leasing Business – quarterly comparison

  • The second and fourth quarters of each year are traditionally strong in terms of the new leasing business during the year.
  • The new finance lease business is responsible for 44% of the total new business, while the new business from operating leases is 4.56%.
  • The asset structure of the new business from Financial leasing is traditional:

At the same time, it is worth noting the rapid growth of the segment “Machinery and industrial equipment”, which marks its fastest growth since 2011 of 55.97% compared with Q2 2017, reaching BGN 109M in the second quarter of 2018

  • The new business in the second quarter of 2018 increased by 14.60% compared with the first quarter of the year, reaching BGN 535M. 14.64% is the increase compared to the second quarter of 2017.
  • The growth of the new business in Q2 is entirely due to the increase in NB from financial leases of BGN 84M compared to Q2 2017, with operating leases falling by BGN 16M over the same period. Thus, the total NB growth for the second quarter reached BGN 68M or 14.64% compared with Q2 2017.
  • The increase in the second quarter of 2018 compared to the second quarter of 2017 is almost equal among the main asset groups of the new leasing business – cars, trucks and machinery and equipment, respectively BGN 38, 34 and 39M.
  • Looking at the second quarters over the years, the trend of recovery and growth of the new business which began in Q2 2013 continues.
  • The term of the leasing new business remains the standard one. Only 5.07% of the new lease business is under 1 year. It is to be expected that in 2019 this part will disappear completely, in line with the new IFRS 16. Leading, with a 86.29% share is the new leases for a period of 1 to 5 years, which is also the classic lease term for the asset structure of the Bulgarian portfolio. The new business of Financial leasing over 5 years is only 8,64%, consisting of the few devoted “Real Estate” deals, a small part of “Machinery and Industrial Equipment” and an episodic contract for a vehicle which is leased for 6 years.
  • In Q2 of 2018 there are no transactions with non-resident customers. The remaining structure of the lessees of Financial leasing by economic segment remains relatively constant:

New Business from Financial leasing Q2 2016
Type of Lessee NB TBGN %
Nonfinancial corporations 430 306 84.20%
Households and NPISHs 79 278 15.51%
Other financial corporations 1 184 0.23%
Government 160 0.03%
Financial institutions 102 0.02%
Nonresidents 0 0.00%
Total 511 030 1
  • In the group of lessees “Non-financial enterprises”, the distribution of the new finance lease contracts signed in the second quarter of 2018 is as follows:

New Operation Leasing Business

  • The decline of the new business from operating leases in the second quarter of 2018 was 39% from BGN 40M in Q2 2017 to BGN 24M in Q2 2018;
  • At the same time, the drop in the new business of the operating lease in Q2 2018 compared with Q2 2017 should should not be over-emphasised, as the main asset groups of cars and commercial vehicles registered an impressive growth of 173% and 60%, respectively. The drop in the new business in the second quarter of 2018 is due to the disappearance of the asset group “Others”, which in Q2 2017 (only then) had marked BGN 26M of new business;
  • By removing the influence of the “Other” asset group, the new operating lease business in the second quarter of 2018 would increase compared to Q2 2017 by BGN 11M or 77.55%;
  • The new business from operating leasing in Q2 2018 is standardly split between its two main asset groups – ¼ of commercial vehicles and ¾ of passenger cars:

Analysis of the leasing companies in Bulgaria

  • The number of leasing companies in Bulgaria is increasing for the 11th consecutive quarter and by the end of Q2 2018 there is already one more leasing company with their number reaching 48 (the leasing companies as at 31.03.2018 are 47);
  • The leasing companies disclose a positive financial result for 12th consecutive quarter. The profit of the leasing companies in the second quarter of 2018 is BGN 51M;
  • For the third consecutive year, the assets of the leasing companies also increas – 12% as of 30.06.2018 on an y/y basis, reaching BGN 4,662 billion;
  • Credit loans remain the main source for financing of the leasing companies, which in the second quarter of 2018 are over 75% of all liabilities of the leasing companies;
  • The analysis of the results of the second quarters for the past years shows a very positive fact: for the first quarter, since the beginning of the recovery of the leasing market, short-term loans to leasing companies decreased (by BGN 194M or 24% compared to Q2 2017), while credits with maturities over 1 year are increasing (by BGN 620M or 27% compared to Q2 2017). Thus, the total credit exposure of leasing companies increased by 14% in Q2 2018 y / y and reached BGN 3,511 billion.

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Analysis of the Bulgarian leasing market