Often in Bulgaria we ask “where are we” (compared to other peoples) or “when will we reach them …” when we are dissatisfied with the state of something in our homeland. We are accustomed to being at the bottom of the rankings for the positive indexes and leading the negative ones. … but is it always that or just the extreme values more often attract attention?
When it comes to the leasing market, it turns out we often overtake “them” – by growth (when the market is rising), and by the drop (when the market shrinks). What is the rank of our country when comparing different parameters of the leasing market? What can we expect in the future? Below is a comparison of the Bulgarian leasing market with other markets and interesting conclusions and forecasts for the future.
Where are we?
The Bulgarian leasing market is part of the European Leasing Market, which is the world’s leader (Europe and the US challenge the first place each year). The Bulgarian leasing market (data from the Bulgarian National Bank) occupies a modest part of the European leasing market (Leaseurope data) – about 0.25% of the market across Europe (not only the EU) or just over 5% of the leasing market in Central and Eastern Europe (CEE), with insignificant deviations over the years.
In order to understand the level of development of the Bulgarian leasing market, we will analyze the 2016 data collected by Leaseurope. They account for about 90% of the European market and 2016 is the last year for which there data was compiled at the date of writing this article.
There is one good and one bad news. It depends on how we view the statistics. On the one hand, it can be said that Bulgaria and the Bulgarians are not very indebted (see Leasing portfolio above) and they are not in a hurry to do so (see the New business below), at least in terms of leasing. Otherwise, Bulgaria has the third smallest (1695 MEUR) leasing portfolio in 2016 (from the Leaseurope Member States). Still smaller portfolios have only Ukraine (488 MEUR) and Latvia (1343 MEUR).
When looking at the new leasing business in 2016, Bulgaria (806 MEUR) climbed two places (compared with the ranking of the LP), where further to Latvia (700 MEUR) and Ukraine (247 MEUR), two more neighboring countries fall behind – Greece (316 MEUR) and Serbia (EUR 339 million). In short, our market is one of the smallest but grows a bit faster than the others in the group.
The link to GDP
GDP is used as an indicator for measuring a country’s economic activity. GDP is also often used to determine the impact of the leasing industry upon it – e.g. “the leasing penetration”. Leasing penetration is the relation of the new business for a given period to the GDP for the same period (there are also other ways for calculation, but this is most applicable for Bulgaria). Here, suddenly the ranking of the Bulgarian leasing market improves dramatically.
With a leasing penetration ratio of 1.58% in 2016, Bulgaria ranks close to the middle of the chart in Europe. This means that despite the fact that the leasing portfolio and the new business in Bulgaria are modest, they are relatively proportional to its GDP and the leasing industry provides the necessary support to the native economy.
This outlines a paradox – countries with a weaker leasing industry than ours are countries which have some economic or political difficulties (Ukraine, Greece, Serbia), while those whose GDP is smaller than Bulgaria’s, have significantly more developed leasing industries (Lithuania, Latvia, Estonia, Slovenia).
Looking at countries with smaller leasing portfolios from Bulgaria or with a smaller size of the new business, we will find that they are all either smaller countries than Bulgaria or have some form of economic or political problem, which limits the economic activity. All of them (with the exception of Serbia and Latvia) have a higher GDP than Bulgaria, but a weaker leasing market. This is not a good reference for our leasing market, or putting it another way – this outlines great potential for future development of the industry.
In order to examine the good examples, and from there the opportunities to the development of the Bulgarian leasing market, let’s rank the countries according to their GDP in 2016.
All Leaseurope countries with a lower GDP than that of Bulgaria, are countries which are considerably smaller (except Serbia) – Estonia, Latvia, Lithuania, Slovenia. It is interesting to trace the places in the ranking of the leasing markets exactly of these countries. As it turns out, significantly smaller countries than Bulgaria have a much higher leasing penetration – Latvia (2.48%), Slovenia (2.59%), Lithuania (3.47%) and Estonia (4.58%). These countries use leasing much more intensively for the development of their economies.
The high levels of lesing penetration are not unknown to the Bulgarian market: the leasing penetration in Bulgaria in the years before the financial crisis of 2008 was: 2006 (3.04%), 2007 (4.43%) and 2008 (5.61%). In 2009 there was a sharp decline in leasing penetration ratio in Bulgaria, with levels in 2009 being only restored in 2016. It is positive that over the past 3 years (since 2016), leasing penetration has accelerated, with an increase of around 12% in 2018. This means that leasing is increasingly used to boost the Bulgarian economy, and the forecasted growth rates of leasing penetration in terms of GDP show that it is possible again in the near future to achieve a level of development in the Bulgarian leasing market comparable with the “best in class” in Europe – we have been there and have done that in the past.
When are we going to reach them
We have looked at the best practices above. Still, the favorite Bulgarian question: “When will we reach them?”. For this, we can look at two new metrics compared to another quite popular one. GDP per capita is an indicator which enables us to compare economies that are otherwise impossible to compare. In 2016 the GDP of each Bulgarian was EUR 7248, while the average for the countries of Europe (thie members of Leaseurope) is EUR 26,054, or Bulgaria has reached almost 28% of the European average. At the same time, according to the indicators of the “new leasing business per capita” and the “leasing portfolio per capita” in 2016, Bulgaria has reached 21% of the average of the countries under review. This suggests that the development of the leasing market is slightly lagging behind the GDP growth, and we can expect some catching up in the coming years.
… and to the question “when will we reach them”: when the GDP per capita in Bulgaria reaches the European average.
A market which “loves and hates strongly”
The analysis of the Bulgarian leasing market shows that it is highly volatile and with pronounced and prolonged trends. We can replace the complex economic lingo with the poetic phrase of Hristo Botev: when the market is bulish, the upsurge in Bulgaria is double-digit and overshadows most of the markets in the European countries, and when the market is shrinking – the decline is again dramatic in size, percentage and duration. In other words, “a market which loves and hates strongly”.
The comparison of the dynamics of the leasing portfolios of Bulgaria and Europe leads to interesting conclusions. Trends in the Bulgarian market are much more pronounced than the European ones – the growth rates in Bulgaria are usually double digits as well as the declines.
Although bigger, the up and downs of the market arrive with a lag. The Global Financial Crisis of 2008 has affected the Bulgarian leasing portfolio one year after the European one, and even in 2008, the Bulgarian leasing portfolio registered a remarkable growth of 59% y/y. The contraction which followed is again stronger and longer than that of the European market. The shrinking of the Bulgarian leasing portfolio continues for seven consecutive years (the first three being again with a two-digit decline), while the European leasing portfolio began its recovery in the second year of 2010, albeit with the traditionally modest one-digit growth. Since 2015, the Bulgarian leasing market has also joined the sustainable rise of the European market. The growth rates of the Bulgarian leasing portfolio are still one-digit, but they are once again superior to the European ones, almost double. In 2017, the European leasing portfolio grew by 4.9%, while the Bulgarian one grew by 8.77%. At the same time, the lack of extreme movements (crises or recovery from them) calms the deviations and almost equalizes the trends of the two markets. The results of the first half of 2018 suggest that this ratio is expected to remain in 2018.
Comparing the dynamics of the new leasing business leads to the very same conclusions, only more strongly pronounsed. All movements are late to come and when they do occur they are more pronounced and longer. For example, while the new leasing business in Europe shrank by almost 8% in 2008, in Bulgaria it marked a 45% growth. Although it a bit late, the decline did come to Bulgaria in 2009. In this year the decline of the European market of 32%, was overshadowed by the collapse of the new leasing business in Bulgaria by 71%. The recovery which followed, was stronger in Bulgaria and continued for one additional year, reaching 35% growth in 2011. The calming of the market in Europe led to even more relaxed movements in Bulgaria, although the growth continues to outpace the European average. The trend in the new leasing business is unambiguous, and taking into account the slower reaction of the Bulgarian market, we can expect growth of the new business during in 2018 of about 15% y/y.
The peculiarities of the Bulgarian leasing market are perfectly illustrated with the graphs above.
However, we should not be left with the wrong impression that the growth and contraction of the leasing market in Bulgaria always exceeds all other European countries. This may happen by comparing the Bulgarian indicators with the European average ones. In fact, our leasing market, although dramatically outstripping the growth and fall of some of the developed European markets, and the average for the continent – growth of new business in 2016 in Bulgaria (+ 9.15%) vs. Germany (+3.09%), UK (- 5.75%) and the Netherlands (+ 1.29%), but seriously lagging behind Russia (+ 23%), Ukraine (+ 42%), or the record holder Greece + 69%.
Asset structure of the leasing market
Interesting findings can also be made in analyzing the commodity structure of the leasing portfolio and the new leasing business. At first glance the typical leasing assets are the same in Bulgaria and in the rest of the world – cars, vehicles, equipment, real estate.
The leading segment of the leasing market worldwide is that of the means of transport. They are the most commonly leased asset. The two components of “means of transport” – “cars” and “commercial vehicles” account for about 67% of the new leasing business in Europe in 2016 (the last year with aggregated data at the date of this article). From these two segments, passenger cars traditionally prevail. According to Leaseurope, 49% of the new leasing business in Europe in 2016 is directed to passenger cars, 18% to commercial vehicles or total “Transport” accounts for 67% of both as new business.
The asset structure of the new leasing business is similar in Bulgaria. Total “Vehicles” (cars and commercial vehicles) occupy also about 70% of the new business. However, there are two major differences. “Commercial Vehicles” in Europe include light and heavy road transport, rail transport, aircraft and ships. In Bulgaria, “commercial vehicles” are exhausted by light and heavy road transport. The market for the other commercial vehicles is non-existent in Bulgaria, so much so that even the segment is named accordingly.
The second difference lies in the distribution of “means of transport” between its two segments – cars and trucks. The share of lorries in the new leasing business in Bulgaria is higher than in Europe because the transport sector (the main customer in this segment) is highly developed in the country while there are some difficulties (related to the purchasing power of the population) in the development of car leasing (this will be discussed in our next article).
The commodity structure in Bulgaria has remained the same over the years, with deviations mainly related to the internal distribution of the transport segments. From the crisis, the “cars” segment is recovering more quickly, and during economic recovery, the “trucks” increase their share. In the first half of 2018, passenger cars occupy 38% of the new business, while the share of lorries is 37%.
Leasing is important for the growth and renewal of the automotive sector in Bulgaria, and as a leading segment requires it to be considered in a separate article.
Conclusion
In the coming years, we can expect increased growth of the new business and hence of the leasing portfolio in Bulgaria. The rates will be above 10%, which will outpace the GDP growth of the country, thus increasing the rate of leasing penetration.
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