For the leasing market in Bulgaria in 2020, there is one good news, one bad news, and one ugly news (just like the classic movie).
The good news for leasing in Bulgaria
The Bulgarian National Bank recently published data on the Bulgarian leasing market in 2020. In the accompanying press-release, at first glance, the leasing market in Bulgaria remains immune to the global contraction in almost all sectors of the economy caused by the Covid pandemic and the related restrictions.
- Growth of the leasing portfolio of 0,4% y/y or with about BGN 16 million;
- Increase of the leasing penetration in Bulgaria at the end of 2020 to 3,7% leasing portfolio to GDP (not that the ratio is correct, but the National Bank use it) from 3,6% at the end of 2019;
- Increase of the leasing portfolio of A leasing contract, under which, the... More and that of operational leasing;
- Decrease of the un-serviced receivables at the end of 2020 with some 17% y/y!
The leasing portfolio is growing, the penetration is increasing and arrears decrease. It seems that in reality, the Bulgarian leasing market remains immune to the global economic downturn.
As incredible as it may sound, the above statistics have occurred in the midst of the following market conditions in 2020:
- Contraction of the global economy exceeding 4% in 2020 (The World Bank)
- A decrease in GDP of Bulgaria of 4,2% in 2020 (National Statistical Institute)
- Contraction of the European economy exceeding 7% in 2020 (The World Bank)
- Decrease of the new leasing business by 16% y/y during the first quarter of 2020 (Slump of New Leasing Business in 2020)
- Decrease in the newly registered commercial vehicles in the EU by 18,9% in 2020 (ACEA)
- Decrease of the newly registered passenger cars in the EU by 23,7% in 2020 (ACEA)
- Decrease of the new leasing business during 2020 in the UK (one of the leading markets in Europe) with close to 25% (Finance and Leasing Association)
Bad news for leasing in Bulgaria
Sadly the Bulgarian leasing market is not immune to global market disruptions. Here is what actually happened:
The statistics of the New Leasing Business reported a decline of nearly 17% on an annual basis in 2020. The decline covers both the new business of A leasing contract, under which, the... More (a decline of 16.78%) and the new business of "Operating leasing" or "Operational leasing" or... More (a decline of 13.39%). The contraction of the new business covers all product segments, being the most significant in the A leasing contract, under which, the... More of “Computers and Electronic Equipment” – 37%, the A leasing contract, under which, the... More of “Commercial Vehicles” – 32%, and the “"Operating leasing" or "Operational leasing" or... More of Cars” – 33%. The total decline of the new leasing business during the year in nominal terms is BGN 364 million.
Leasing penetration (calculated as a ratio of New Business to GDP) also dropped to 1.54% at the end of 2020 compared to 1.85% one year earlier.
The ugly news for leasing in Bulgaria
We can ask ourselves the logical question: how, with a normally depreciating portfolio and a decline in new business in 2020, is the leasing portfolio maintained (the pink picture described at the beginning of this article)? This paradox is complemented by a decline in lease arrears.
Here is the answer: following the recommendations of the BNB and the “credit vacation” provided by banks in the country, the A company whose main activity is... More followed suit.
Hence the total leasing portfolio in Bulgaria has not depreciated “normally” in 2020. Part of it has been rescheduled (in the general case against payment of interim interest only).
Apparently, A company whose main activity is... More have used rescheduling of debts and for difficult receivables due to, as well as preceding the pandemic crisis. Therefore, we see a general decline in non-performing liabilities at the end of 2020 compared with 2019, even against the background of the grim economic picture described above.
We could also guess the approximate amount of deferred receivables. If with a normal portfolio of BGN 4 billion and an annual new business of about BGN 2 billion, the annual growth or decline of the market is but a few percent. Therefore, in case of stagnation (growth is minimal) in the leasing portfolio and decline in the new business of BGN 365 million, the rescheduling of the leasing portfolio is equal to or exceeds the decline in the new business (with a relatively constant leasing portfolio volume) therefore it is equal to or exceeds BGN 365 million for the year. This relative to the total leasing portfolio is approximately 8.5%. If we add to this the non-performing leasing of BGN 112 million, the percent of problematic leasing receivables will bubble up to 11% of the leasing portfolio.
Although not an immediate threat, the risk to the leasing industry of this percentage of problematic receivables is high, especially in scenarios of worsening economic development in 2021.
The picture could turn ugly.