FACULTY OF ECONOMICS AND BUSINESS ADMINSTRATION SPECIALISATION FINANCE AND BANKING BACHELORS DEGREE THESIS Coordinator: Assoc. Prof. PhD Laura… [309600]

FACULTY OF ECONOMICS AND BUSINESS ADMINSTRATION

SPECIALISATION FINANCE AND BANKING

BACHELORS DEGREE THESIS

Coordinator:

Assoc. Prof. [anonimizat]: [anonimizat]

2018

[anonimizat]:

Assoc. Prof. [anonimizat]: [anonimizat]

2018

CONTENT

Introduction 4

Chapter 1 THEORETICAL FRAMEWORK OF THE LEASING…………………………..6

1.1. Concept of leasing 6

1.2. Classification of leasing operations 8

1.3. Stages of leasing process 11

1.4. Advantages and disadvantages of the leasing 12

Chapter 2 EVOLUTION AND TRENDS REGARDING THE LEASING MARKET……14

2.1. Evolution regarding leasing market in Europe 14

2.2. [anonimizat] 20

2.3. Leasing versus bank credit 29

Conclusions 33

References 36

Annexes 37

Introduction

Leasing is a market economy product resulting from the evolution of the process of identifying new forms of financing for the sale of products and services. Leasing is therefore a compromise solution in that you invest with the money of another by adding a small contribution.

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Leasing is a modern alternative to classic credit. This form of financing provides the creditor with the right of ownership as a guarantee, which gives the credit a low degree of risk. Leasing emphasizes the modern tendency of capitalism to make dissociation between those who hold capital and those who actively use this capital. It also undermines the traditional conception of property and seriously affects the myth of property in the sphere of economic doctrines.

We can say that leasing is a means of vitalizing economies without capital.

Thus, leasing can be a win-win solution for some economic agents who have financial resources, a way to place economies and multiply them by setting up leasing companies. Leasing is a [anonimizat] a need for which they have no financing.

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Leasing financing is a modern and advantageous solution to provide fixed capital to enterprises. [anonimizat], equipment, facilities, buildings, [anonimizat] a leasing contract under certain conditions.

Essentially, "leasing" involves an agreement transferring the right to use a good for a set period of time and the ability to buy it at the end of the period; [anonimizat] /or selling in installments.

Worldwide practices reveal the use of a direct leasing (the manufacturer and the owner of the asset entrusts it to a beneficiary) and an indirect leasing (a [anonimizat], the first purchases the good at the beneficiary's indication and it provides to the user as a result of regular payments).

A distinction is made between operating leasing and financial leasing.

In the first case, the property remains to the lessor (owner) after the end of the agreed period; in the second case, at the end of the period, the lessee (user) acquires the asset which he has leased by paying a residual value (the sum paid by the lessee at the end of the contract, usually with the date of the last leasing installment, in case the User want to buy the asset). So the leasing has both similarities and differences to a sale in installments as well as traditional rental.

In the Romanian economy, the tendency is to develop small and medium enterprises and Romanian business people are increasingly interested in this field.

SMEs have a limited range of financial instruments because of the restrictive eligibility conditions for loans accorded by commercial banks. Thus, leasing is more advantageous than credit for SMEs and start-up companies unable to obtain a credit from a commercial bank because they do not have a robust credit history for to contract a traditional lending and the finance by leasing does not require collateral assets from customers. Through leasing operations have the opportunity to acquire a wide range of assets needed development of the company.

Although leasing companies offer diverse financing tools and a flexible financing of the main types by assets (equipment, vehicles, real estate), due to tax deductions, companies occupy a higher share in the total leasing market than private individuals which prefer financing through loans from banks.

From the theory and the international experience it is known that the normal functioning of the market economy is conditioned by the promotion of efficient economic policies and the application of the appropriate legislation. Experience in the field, both developed and developing countries, demonstrates eloquently that businesses use leasing to finance medium and long term investment projects. The range of the equipment delivered through the leasing transactions is varied, which ensures to each beneficiary an individual approach to the possibility of choosing the assets leased according to the technological needs and the financial possibilities.

In Romania, leasing is no more a form of financing out of the ordinary, the population being more familiar with leasing financing for the purchase of cars. In the context of the technology modernizing in the Romanian economy, the mature market of Romanian leasing will tend to new financing structures and in the future the leasing will be use in especially for the acquisition of expensive equipment. Depending on the fiscal treatment of leasing in Romania, many acquisitions of equipment that are still financed today by their own resources or by credits, these will soon be funded through leasing. It is thus possible for the leasing object to be represented by rolling stock in the railway system (still owned by the state), aircraft (military) and even to entire production units.

Even though there is a solid practice in leasing finance in Romania, we can expect that in the future that we will see an increase in the number of financing in a leasing.

The thesis is structured in two chapters, combining the theoretical aspects of the leasing with the practical ones. New business techniques are proposed, applicable both in the European economic environment and in the Romanian environment.

In chapter I, we will understand better the theoretical framework of the leasing by defining the leasing concept and debating the advantages and the disadvantages.

In chapter II, we will follow the evolution of the leasing market in Europe, leasing market in Romania – features and trends and then a compare between leasing and bank credit.

The reason I chose this work is that leasing has proved to be the most effective means of financing productive investment, providing added value and safety of the owner. This form of financing gives the financier the right of ownership as a guarantee, which gives the financier a low risk. Romania, an integrated state in the European Union, tends towards a modern and efficient market economy, targeting the development of trade and the attraction of investments. Investments in assets generate profits for the company if they are used with maximum yield. Proper use of capital resources, continued investment in new business opportunities, marketing and advertising funding, lifelong training and staff training are strategies and policies that drive the progress of a company.

CHAPTER 1

THEORETICAL FRAMEWORK OF THE LEASING

1.1. Concept of leasing

In the foreign legal literature we find that the first forms of leasing would have appeared in Mesopotamia, Egypt and Greece.

Justinian, in the Second Book of the Institutes, developed detailed rules that individualized the operational leasing.

In modern society, leasing emerged as a solution to the following situation: economic agents needed the rapid purchase of new machinery and equipment. The necessary funds had to be procured without the economic agents having to make mortgages or pledges in favor of some banking institutions.

The practical solution to solving the situation was leasing. There was a way (a contract) whereby a party, called the lessor (financier), undertakes to send a certain asset for a specified period to another party called the lessee (user), against periodic payments called leasing rates and to respecte, when the contract expires, the user's right of option, which may consist of: 1) the purchase of the asset; 2) extension of the contract; 3) termination of the contract.

Leasing first appeared in the US and gradually this technique has expanded to other countries, especially in Europe. Its emergence as notion and form of funding dates back to 1950, but the economic base was formed earlier in the period before World War II.

The first leasing company in the US was registered in 1855 under the name of "The Birmingham Wagon Company". Through the activity of this company the railway wagons were leased to the owners of coal and other minerals. Also, in 1877, Bell Telephone Company in the US offers users the ability to use their own phone devices at a cost of use, without requiring payment of the counter value of these phones. This type of contract was called lease.

The radical change takes place after the Second World War – in the US after 1950, and in Europe – after 1960, as a result of revitalizing the economy of these countries.

Businessmen wanted to purchase modern equipment because the machines they used were worn out. To finance their business, at that time, there were only bank lending procedures that were complicated and cumbersome, assuming excessive time and bureaucracy, so they found a more efficient formula and that is leasing.

Thus, the financier who appeared as the buyer of the equipment from the supplier and who retained the ownership of the equipment in question, goods that he gave to the entrepreneurs in leasing.

The advantages of this method have led to the founding, in 1952, by Henry Schoenfeld and D.P. Booth, the first specialized leasing company called United States Leasing International Corporation. This company exists today, the current name being United States Leasing International Inc. – US Leasing and is one of the most powerful companies in the field.

The main supporters of the leasing of industrial equipment were the banks either indirectly through specialized leasing companies or directly as a result of banks receiving the authorization to carry out such operations.

Leasing has rapidly expanded throughout Europe, so that in 1972 the European Leasing Federation was established, which controls about 80% of Europe's financial leasing industry and this has the largest shareholding in the UK.

An important aspect of the study of the history and evolution of leasing is its spread to Latin America and Asia, where were established „Leasing Association of Singapore” și „Manila Asian Leasing Association.

From the aspects presented, it results that leasing, as a trade technique, is present in the economies around the world, due the advantages which it entails.

As we have seen, the leasing operation is mainly a financing technique for companies wishing to acquire machinery and equipment but without financial means, in that those economic agents can secure their full financing without be forced to contract a bank credit or that they to establish that their movable and immovable property to become mortgage or pledge, tasks that can affect the dynamics of the commercial domain.

Leasing is a commercial operation whereby a party called the lessor/financier sends for a certain period the right to use a good whose owner is to another person called the lessee/user, at the latter's request, against a periodic payment called lease rates and at the end of the lease period, the lessor/financier undertakes to respect the user's right to purchase the asset, to extend the contract or to terminate the contractual relationship.

The user may choose to purchase the property before the end of the leasing period if the parties so agree and if the user pays all the obligations assumed under the contract.

The evolution of technical progress and the evolution of the relationship between supply and demand are aspects that involve a rapid reaction to the investment decision-making level, investments that exceed their own financing capacity, are the main reasons for the start of the leasing operations.

The easiest solution was the leasing operation, which brings three important aspects: production, finance and marketing. Property, buildings and vehicles are common goods that are leased, but goods such as industrial or commercial equipment can also be leased.

A lease is a contractual agreement that requires the lessee (user) to pay the lessor (owner) for use of an asset.

In general, a lease agreement is a contract between two parties, the lessor and the lessee. The lessor is the legal owner of the good and the lessee obtains the right to use the good in return for regular rental payments. The lessee also agrees to respect by various conditions regarding their use of the property or equipment. For example, a person who takes a car in a leasing must accept that the car will be used only for personal use.

From an economic point of view, leasing is a source of funding, based on a contract specific, the financier (the lessor) offers the necessary funds for the entire investment. During the contract, the lessor (the owner) allows the lessee (the user) to use the property in exchange for the promise to make a series of payments.

During the leasing contract there is an obligation to insure the goods and the lessee/user has the right to choose his insurance company with the agreement of the leasing company.

The benefit earned by lessees/users appears from the use of the property and not from possess the property.

The leasing includes a variety of transactions from those in which the lease involves the use of the property for a short period of time, with the possibility to choose the purchase of the property at the end of the contract and in this case the lease is in fact a means of financing the lessee/user for the acquisition of the leased asset.

We can say that leasing is a buy transaction in rate in case of the asset becomes the property of the user.

The participants in the leasing operations are:

The supplier – may be a manufacturer of goods or a company that has purchased from the producer;

The lessee (user) – is unique as a rule of the leasing. Only in certain situations, stipulated in the leasing contract, it is possible to exploit the asset in association with another user, that is to say, sub-leasing it. These are participants in the leasing cycle;

The lessor (financier, owner) – may be a financial company, a holding company, an investment bank, a commercial insurance company, a leasing company or even a supplier. There are situations where it attracts other companies to finance the operation if the value of the asset is high.

If the financier is a bank, it has no control over the maintenance and exploitation of the asset and the bank collects only late payments of loan (if the asset returns into the supplier's property).

Therefore, the good will have to be protected by a collateral guarantee. In this case, leasing rates will be much higher because banks, unlike insurance companies, do not pursue profits from the handling of goods, but from handling money that is more expensive because, being liquid, they have a higher rotation.

1.2. Classification of leasing operations

Expanding the use of leasing operationa has been accompanied by a diversification of the concrete ways of organization, marketing and finance, witch allow the establishment of a set of criteria by which these operations are classified.

Leasing classification by supplier's position in the contract

Depending on the position of the supplier in the leasing contract we have: direct leasing and indirect leasing.

– Direct Leasing – the leasing contract is between the producer and the user of the asset subject to the transaction, the financing being provided by the supplier (producer), in which case the supplier is the same and the lessor, being both the producer and the trader of the asset;

– Indirect leasing – involves the existence of specialized leasing companies, which take over the lending, the provision of services, the contracting, the financing and the control of payment of the installments, assuming the risk of these operations.

Leasing companies may be:

– General leasing companies – companies that have as their object the leasing of industrial equipment, durable goods and buildings, commercial or industrial use, property for housing. These companies may appear either as independent firms or as branches of financial companies;

– Intermediary leasing companies – carrying out a mediation activity. Ownership of leased equipment belongs to those who have provided the investment funds;

– Integrated leasing companies – these are constituted by large production units that have set up their own leasing companies to benefit from the financial benefits resulting from these transactions;

– Banks and financial companies – who are engaged in leasing operations by providing funds to leasing companies and participating in loans made by third parties to finance these operations;

– Insurance companies – as far as investments are concerned, they are carries out in a similar way, subject to certain restrictions imposed by the different Member States.

In Romania, art.5 from O.G. no. 51/1997 regarding the leasing operations and the leasing companies, republished in the Monitorul Oficial no. 9/2000 is amended and completed as follows:

-under the lease, the obligation to insure the good comes from the lessor/financier, who has the freedom to choose the insurer, unless the parties have agreed otherwise;

-the cost of the insurance is recovered with the lease rate from the lessee/user;

-art. 26 provides that the costs of insuring the asset subject to a finance lease are tax deductible by the party related by contract to pay the insurance premiums;

-in the case of the recording of damages and the collection of the sums from the insurance of the object of the leasing contracts, the parties may agree the extinction of the mutual debts by offsetting according to the law.

Leasing classification by the content of the leasing rate

– Financial leasing: During the contract, the beneficiary pays (in installments) an amount that includes the full price of the contracted equipment, all the costs associated with the import operation, as well as a benefit of the leasing company. The duration of the contract is usually shorter than the life of the equipment. At expiration of the contract, the equipment remains the property of the beneficiary.

– Operational leasing: During the contract the beneficiary pays only part of the price of the contracted equipment. The rate actually means the payment for the services provided by the leasing company (spare parts assurance, repairs, etc.). At expiration of the contract, the beneficiary loses the right on the equipment. Please note that this type of contract can be terminated before the deadline, at the request of the beneficiary.

Financial leasing means that the lease must be the full amount of the contract, including ancillary costs and benefit. The finance lease is terminated for the basic period and may be terminated by either party and the economic and financial risks are transferred to the client. If the payment is delayed by the customer, the partner has the right to dispose of the leasing object.

Financial leasing can have two posibilities:

– Financial leasing with full payment – the entrepreneur, at the end of his basic period, cover the production costs and commercial expenses, to earn interest on the invested capital, plus a benefit that increases as the lease period increases;

– Partial finance lease – at the end of the lease period, the residual value of the equipment is determined and that will be supported by the user if he wants to become the owner of the asset.

Operational leasing takes the following forms:

– true lease, the contract being terminable and having as its object machinery, vehicles and equipments temporarily used by the user in its commercial activity;

– service and maintenance lease, which allows the user to benefit, in addition to the equipment offered by the lessor (who is the producer of the good) and certain related services and technical assistance.

The most popular forms of the leasing are the followings:

– Prudence Credit (in France) – is a form of financial leasing that includes payments made by the lessee that exceed the sale price of the asset, as well as financing costs. It is a complete transaction through which the lessor, based on the user's specifications, purchases from the provider the asset and request the lessee charges a fee for the use of the asset;

– Tax Leasing (US, UK) – the form in which the clauses strictly follow tax compliance (annual income tax) and regulations to maximize tax benefits for both the lessor and the lessee. Most of the deals in the United States and the UK are tax leasing, and their role is to maximize earnings.

– Hire-Purchase is a method of purchasing goods by effectuation payments in installments over time. The term "hire purchase" originates in the UK and look like the rent-ownership regime in the US. Under a hire purchase agreement, the customer rents the property and does not obtain the right to proprietary until full payment of the contract. Offering hire purchase options, the companies earn a profit by adding additional costs to the monthly payment which represents as interest charges for the purchase.This time, the focus is on services provided by the leasing company, with a direct relationship between the price of purchase and rental. The leasing company assumes the risk and moral responsibility to provide spare parts, repair, equipment insurance and payment various fees. A lease is terminated at the request of the beneficiary, who may request it before the deadline. Both parties have the right to extend the duration of the contract after the base period.

● Leasing classification by the content of the perceived tariffs:

– Gross leasing, which includes in its rates, in addition to the sale price of the goods (in whole or in part), include and maintenance, service and repair expenses;

– Net Leasing, which includes in its rates only the price of the object to be leased.

Leasing classification in according to the particularities of the leasing techniques:

– Lease-back, includes the operations by which the owner, who is in urgent need of money, sells a fixed asset (buildings, vehicles, equipment) of a leasing company and then hires it through a regular contract. After the expiry of the primary period, the original owner has the right to repurchase the company at a pre-established price;

– Time-sharing, involves the system of rentals in shared times, simultaneously, by several enterprises;

– Experimental leasing is used to promote sales. This involves short term rental of machines and utilities, experimentally provided that after the expiration of this period they will be purchased by the clients if they correspond or they will be returned if they have deficiencies;

– Renting is that short term or very short term lease agreement for renting day or by hour of goods, in particular means of transport or construction equipment: cranes, excavators, etc. These are considered by specialists as forms passing from regular rental to leasing. The main obligation of the owner (lessor) is to provide the user the machineries, machines or means of transport, as required by the applicant, and to provide their service. The element of differentiation between renting and leasing is the obligation of the rental company to ensure the maintenance of the rented equipment, unlike the leasing company, which has no such liability;

– Shareholder (crédit-bail d'actions) is a financial technique set up by the Groupement Français d'Enterprises in France, invented to satisfy the growing demands of small and medium-sized enterprises to attract funds. The operation is somewhat similar to the leaseing-back contract used for movable or immovable property and involves the following steps: A small or medium-sized company increases or establishes its own capital by issuing shares that are subscribed by an investment fund. The investment fund transfers its shares to the issuing company, which in turn will pay periodically a sum of money as rent, upon expiration of the contract, the issuing company being able to redeem its shares at a price agreed with the investment fund, taking into and the rent paid;

– Master Leasing (container leasing) is a contract is used by transport companies, pecialized companies dealing with the container park business. The appearance of this contract being determined by the advantages of a carrier to rent the containers, compared to their purchase, which would involve additional expenses related to the organization of efficient operation, maintenance and repair, as well as training qualified staff. It is available in two versions:

a) term leasing – rental period;

b) trip leasing – rental on the trip.

Master leasing system – is the form in which the major leasing companies sought to strengthen their market positions, using as a specific way the complex lease agreements.

● Leasing classification by source of funding:

– Leveraged lease – the leasing company only finances part of the value of the asset, the difference being covered by various creditors (which are all financial companies). This lease is used if its object is the high value equipment;

– Leasing from producer – purchase from the producer of the leased goods.

Some of the above leasing operations tend to be used more often than others due to their methodological simplification.

1.3. Stages of the leasing process

Generally, in deployment a leasing contract, at least five parties are involved in the different stages of the financing process: the leasing company, the customer or the end-user, the supplier of the purchased asset, the financing bank and the insurance company.

The stages of the leasing process are:

– Choice of goods and supplier. Depending on the needs of the client, he decides on the characteristics of the good and the supplier. All details related to the nature of the good (price, technical characteristics, delivery details, installation and commissioning conditions for equipment) will be negotiated by the user directly with the chosen supplier, they will specify and respect all aspects negotiated in the sales contract and in the leasing contract;

– Obtaining the offer and asking for the lease. Based on prices negotiated supplier prepares a general offer of funding, which will be calculated, the advance rate of leasing, insurance value, etc. Following the transmission of the leasing request, the initial offer may be subject to changes depending on the risk class to which the customer will be placed. The risk analysis is based on the financial documents provided by the client (balance sheet, balance, profit and loss account) and other required documents (leasing questionnaire, presentation of the company's activity, business plan, etc.);

– Analysis and approval of the leasing request. Evaluation leasing request is made by specialists in a period not exceeding 48 hours. Depending on the complexity of the proposed project financing, leasing company may request the customer of the further information on some aspects analyzed, the final evaluation response will be based on providing the requested information;

– Concluding the contract. If the answer is yes, the lease contract will be concluded and will be sign. The lease contract may be financial or operational and this will include the clauses negotiated by the user with the supplier of the asset and clauses specific to the leasing company regarding the method of payment of rates, insurance payments, and so on;

– General insurance of the good.The good to be procured will be provided by the leasing company, throughout the leasing contract, with the option for all risks, under the conditions established with the insurance company and the financing bank and the premium of insurance will be paid by the user;

– Delivery of goods. The obligation to deliver the goods is the exclusive responsibility of the supplier. In the case of imported products, the insurance premium will be calculated at the value of the price including transport and insurance paid to the place of destination but also all customs duties on goods;

– Terms and financing costs. Legal persons established on the basis of Law 31/1990 republished can obtain financing for the acquisition of leasing assets, as well as individuals or authorized person;

– The financed goods may be new, imported or purchased on the Romanian market or second-hand in which case an additional assessment will be carried out by the leasing company's specialists;

– Various vehicles can be financed (cars, vans, minibuses) as well as medical devices, telecommunications, computers, etc.

– The duration of the leasing contract may vary between 12 and 48 months, depending on the client's needs and the outcome of the financial analysis.

Documents required for analysis depend on the legal personality of the applicant (legal person, authorized person, individuals), different types of documents are required to highlight the creditworthiness and ability to pay.

In particular, the requested documents are:

– Application form or Order form, standard documents;

– Financial and accounting documents (verification balance, balance sheet etc., to present financial situation in the last two years of activity);

– Legal documents of the company wishing to acquire a good in a leasing system (registration certificate, fiscal identification code, extract, certified statement, constitutive act, association documents and annexes, if applicable, etc.)

– Declaration of commitment of the user;

– Proforma invoice, with a detailed description of the good and the technical characteristics, the payment and delivery modalities, the price and the payment currency;

These stages and items vary from one leasing company to another, but the more the idea should be the same.

1.4. Advantages and disadvantages of the leasing

Over time, the lease agreements have been improved by adding or removing the terms, benefits or obligations. I will list below some of the advantages and disadvantages of leasing.

For the user, leasing has the following advantages:

– Lease payments constitute an advantage by saving in the initial phase of equity, because the payment of an advance is not obligatory;

– The constant amount of the lease rate facilitates more rigorous expenditure planning;

– The company's balance sheet does not change because both the assets and the liabilities that the results of the lease do not appear on the sale, the rate of lease being considered as an expense of the company;

– The duration of the contract may be so fixed that the enterprise is permanently equipped with the most modern and best-performing machines;

– The supplier can agree to replace equipment that is under contract with another more modern, the user thus being protected from the effects of moral wear;

– Leasing providers can agree to continue using the goods after the end of the contractual period with a lower fee.

For the supplier, who may be the direct producer or the owner of the purchased goods to be distributed through the leasing, it has the following advantages:

– Contributes to the promotion and development of exports, the supplier being able to carry out, in addition to traditional and leased exports, the mechanism of which effectively contributes to the expansion of demand for a range of high-value goods;

– It allows the attraction of new beneficiaries who can not pay the whole price in the case of cash sales or the advance on credit sales;

– Winning new customers, and as such, the promotional role of leasing is also achieved by the fact that certain equipment is first leased to convince the customer of their yield, in case of a positive result, it can acquire the equipment (experimental leasing);

– Provides for additional earnings from the resale or re-rental of machines and equipment that have been returned after the lease expires;

– The balance sheet is not affected by the debt and the sale of the receivables does not require a credit application.

Leasing can also be considered a form of privatization, which has advantages both for the state – the property is temporarily preserved on the respective economic agents and can be privatized after the client has demonstrated his managerial qualities – and for the respective clients, thus to be attracted to this action, capable managers who have no capital, could not engage in such business.

The real estate leasing with the irrevocable sale clause, having as object the assets of the state trading companies and the autonomous regies, has spread widely at the national level through its legal regulation, being on the one hand the main means of privatization, and, on the other hand, the most advantageous alternative for small and medium enterprises, which can thus use production, commercial or service spaces that they could not obtain under other conditions.

Leasing also has certain limits for both the customer and the supplier.

Among the disadvantages that leasing presents to the client we mention:

– Is effective only if the object of the leasing contract can be exploited during the entire lease period;

– It is often more expensive than credit purchases, and the prospect of such an operation is only justified if the amounts released can be invested in other very cost-effective areas;

– The operation becomes really profitable in limited numerical situations (we take into account especially the financial leasing), in other words, the leasing has limits in terms of the possibilities to give the importer economic advantages.

For leasing companies there are certain risks:

– Only the use of property is alienated, preserving the property, sometimes the goods can be damaged by improper use, and the causes are difficult to establish;

– After the first rental, there is no longer the possibility to find other users.

Besides the advantages and disadvantages presented, we will present some aspects of the leasing:

– The contractual conditions are standardized, which allows for operability and mobility in the negotiations that are carried out for the conclusion of the operation;

– The parties may include special clauses in the contract and usually they are considering the choice of penalties system, depending on the nature and value of the contract;

– Payments for the right to use tangible or intangible assets are included in costs and as such are deducted from taxable profit;

– Leasing facilitates the privatization of real assets – movable goods – ownership of commercial companies to which the state is the sole or majority shareholder if least part of the depreciation costs have been covered;

– In the case of judicial reorganization or declaring the user bankrupt, the owner does not lose the goods but exist the risk not having to pay the outstanding amounts and the lessor reserves the right to claim compensation.

Among the disadvantages outlined in the leasing practice would be that if the beneficiary company can obtain preferential loans on advantageous terms, that it will no resort to leasing, because the leasing will appear unsatisfactory. However, exist a number of 'hidden costs' that occur in the case of these types of financing by credits and which must be taken into account, for example: payment of an advance, solicitation of guarantees, insurance, etc. Disadvantages or advantages of leasing operations exist, but they should not be exagerate in either one sense or another, but should be regarded as complex and extremely useful operations in most of the times.

In Chapter 2 we will make a thorough analysis of the evolution regarding leasing market in Europe, leasing market in Romania – features and trends and then a compare between leasing and bank credit.

Chapter 2

EVOLUTION AND TRENDS REGARDING THE LEASING MARKET

2.1. Evolution regarding leasing market in Europe

The leasing market in Europe shows a period of steady growth in recent years. It can be seen that countries with a strong economic capacity hold the highest shares, while countries with a similar economy to Romania, are ranked roughly the same or below.

Leaseurope is the trade association representing the European leasing and automotive rental industries, represented approximately 94% of the European leasing market in 2016.

The European Federation of Leasing Company Associations – Leaseurope and is composed of 45 Member Associations in 32 countries.

The countries represented are: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Morocco, the Netherlands, Norway, Poland, Portugal, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Tunisia, Ukraine and the United Kingdom.

Leaseurope has published the results of its preliminary survey for 2017 of the European leasing market. The preliminary data shows for 2017 sustained that the leasing market register another year of growth, which is similar to the high scores observed in 2016. In 2017, total new business volumes increased by 9.6% compared to 2016. The outstanding portfolio rising by 4.9% of the member associations reporting, where outstanding contracts for equipment maintain stable around the level as previous year and real estate had a contraction.

New business volumes for vehicles increased by 9.3% in 2017, over the past eight years, continuing with an increasing trend. Equipment leasing increase of 12.9% compared to last year, but the real estate leasing market decreased by 3.8%.

In many countries, due to economic growth, to resulte increase the investments in 2017 and leasing equipment increased more than in previous years, exceeding the vehicle sector. This shows that leasing is used as a form of financing in Europe.

The forecasts for the years 2017 and 2018 show that the European economy is stabilizing after the crisis and the European leasing industry has the role of supporting the economy.

We will analyze the leasing market in Euope using statistical data provided by the Leaseurope, in the 2016 Annual Survey, Key Facts & Figures and extracts from different specialized publications.

In 2016, according to Leaseurope – Annual Statistical 2016, total new leasing volumes worth is €333.7 billion and in compared with 2015, this represents an increase of 10.3%. In Europe, the portfolio of leased assets (outstandings) at the end of 2016 grew by 6.4% in compared with 2015, reaching €779.1 billion in 2016 compared to 2015 when it was €756.6 billion according to Annex1.

In the figure below (Figure 1) we can see the total new leasing volumes per cluster in 2016 (in Billions Euro).

According with the analyses data, the highest total new leasing volumes per cluster in 2016 were registered by UK (73.8 bil. Euro), followed by Germany (55.0 bil. Euro) and France (47.8 bil. Euro) and the lowest levels were recorded by Russia (10.1 bil. Euro) and the cluster formed by Greece, Portugal, Spain and Morocco (16.8 bil. Euro).

We can say that approximately half of the national markets have registered an increase of over 10%. Especially Russia, Ukraine and Greece demonstrated in 2016 increases in new volumes, returning after a few years of low levels.

Figure 1. Volumes per cluster in 2016 (in Billions Euro)

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

In the figure below (Figure 2) we can see the leasing growth rates based by country in 2016, growth rates are adjusted for exchange rate fluctuations.

Figure 2. New leasing growth rates by country in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

The statistical analysis shows that all associated member countries reported an increase in 2016 as compared to 2015 and for total new leasing volumes, in 2016 grew by 10.3% compared to 2015, in accordance with the Annual Survey 2016 (Annex 1).

In the figure below (Figure 3) we can see in 2016 the total new leasing volumes (the annual growth rates based on a homogenous sample of members reporting from year to year in Leaseurope’s Annual Statistical Enquiries and are adjusted for exchange rate fuctuations from 2007 onwards):

Figure 3. Total new leasing volumes (annual growth rates)

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

It can be seen that we have a positive annual growth rate starting with 2013 for total new leasing volumes, in 2016 grew by 10.3% compared to 2015, but it has not yet reached the level of 2005 when we had the highest annual growth rate of 13.5%. It is noted that the lowest level for total new leasing volumes was registered in 2009, when it was recorded a decrease of -30.3% compared to 2008.

In the figure below (Figure 4) we can see the new leasing volumes per asset type in 2016: equipment inclusive vehicles and real estate:

Figure 4. Leasing volumes per asset type (annual growth rates)

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

It can be seen that we have a positive annual growth rate starting with 2014 for leasing volumes per equipment inclusive vehicles, in 2016 grew by 10.7% compared to 2015 according to Annex2, but it has not yet reached the level of 2007 when we had the highest annual growth rate of 14.7%. It is noted that the lowest level for total new leasing volumes per equipment inclusive vehicles was registered in 2009, when it was recorded a decrease of -30.3% compared to 2008.

For real estate annual growth rate in 2016 grew by 1.8% compared to 2015 according to Annex3. It is noted that the lowest level for total new leasing volumes per real estate was registered in 2012, when it was recorded a decrease of -32.3% compared to 2011 and in 2005 it was recorded the highest annual growth rate of 24.8%.

It can be noticed that for real estate leasing it is much more difficult to achieve a positive annual growth rate after the financial crisis that has taken place in Europe, because the value of the investments is much higher and implicitly the risks of project realization are much higher and the investors have become more cautious.

In the figure below (Figure 5) we can see the new leasing volumes per asset type in 2016: passenger cars, commercial vehicles, equipment and real estate:

Figure 5. Leasing volumes per asset type in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

Automotive assets (passenger cars and commercial vehicles) was the largest segment of the European market of leasing assets, representing 67% (€225.3 billion) of total new volumes granted during 2016. The equipment representing 28% of total new volumes granted during 2016 and real estate does not exceed 5%.

In the figure below (Figure 6) we can see the new leased equipment volumes per asset type in 2016: passenger cars, commercial vehicles, machinery&industrial equipment, computer& business machines and big/other.

The machinery and industrial equipment segment inceasing by 10.3% in 2016 compared to 2015, to reach 16% (€ 52.1 billion) of new equipment leasing volumes.

The passenger car sector growing by 12.6% in 2016 compared to 2015, to reach 52% of new leased equipment volumes per asset type and the commercial vehicles inceasing by 13,1% in 2016 compared to 2015, to reach 19% (€ 61.2 billion) of new equipment leasing volumes.

The computer&business machines representing no more 5% of new equipment leasing volumes.

Figure 6. Leased equipement volumes per asset type in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

In the figure below (Figure 7) we can see the growth rates for new leased equipement volumes per asset type in 2016: passenger cars, commercial vehicles, machinery&industrial equipment, computer&business machines, bigs (ships, aircraft, railway and rolling stock segment, etc.) and other types of equipment (includes energy generating assets, such as photovoltaic panels):

Figure 7. Growth rates for leased equipment volumes per asset type in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

In Figure 7 we observe that the bigs (ships, aircraft, railway and rolling stock segment, etc.) growth rate in 2016 grew by 12.5% compared to 2015 and for other types of equipment (includes energy generating assets, such as photovoltaic panels) growth rate in 2016 grew by 5.8% compared to 2015 for new leased equipment volumes.

In contrast, computer&business machines was recorded a decrease of -7.4% in 2016 compared to 2015 for new leased equipment volumes.

In the figure below (Figure 8) we can see the new equipment (including vehicles) leasing volumes per client category in 2016: consumers, public sector, services, agriculture, forestry&fishing, manufacturing industry&construction and other.

Figure 8. Equipment (including vehicles) leasing volumes per client category in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

New leasing volumes for consumers representing 24% and “was the only client category that has been steadily increasing since 2010” conform Leaseurope Facts & Figures 2016.

New leasing volumes for public sector as well as and for agriculture, forestry&fishing representing no more 3%.

The highest level for new leasing volumes was registered for services representing 43%.

In the figure below (Figure 9) we can see the new real estate leasing volumes per building type in 2016: industrial buildings, office buildings, retails outles, hotels&leisure, utilities and other.

Figure 9. Real estate leasing volumes per building type in 2016

Source: http://www.leaseurope.org, Leaseurope Facts & Figures 2016

New real estate leasing volumes growing by 1.8% in 2016 compared to 2015 to reach €15.8 billion.

The largest segment was industrial buildings represented 33% of total new real estate leasing volumes and the smallest segment was hotels and leisure buildings represented 3%

Each year, Leaseurope performs a top of European leasing companies, parent or stand-alone companies (bank related, captive or independent leasing companies). These are ranked according to the total new business within Europe in 2016 (Annex 4).

By analyzing Leaseurope's top leasing companies in 2016, we will find some of them on the leasing market in Romania: Societe General, Deutsche Leasing, UniCredit Leasing, ING Lease, Raiffeisen Leasing, Alfa-Leasing, NLB Leasing.

In Romania, according to a newspaper “Ziarul Financiar”, UniCredit Leasing has consolidated its first place in the leasing market in 2016 and has financed goods value 1.57-1.62 billion lei (350-360 million euros), followed by BCR Leasing and Impuls Leasing.

2.2. Leasing market in Romania – features and trends

The leasing market in Romania experienced a gradual development, becoming a viable alternative to funding equipment and vehicles, but less used for real estate investments. Companies of leasing are non-banking financial institutions (NBFIs), which carries out lending activities, but towards difference from banks do not have customer deposits in the portfolio.

The economic crisis has transformed the market leasing into a constant liquidity provider for the private sector, whose funding was limited to the period of the financial crisis, providing real support economy especially small and medium enterprises (SMEs), the main beneficiaries of financing through leasing.

In principle, leasing is asset financing and ownership of the asset provides a sufficient guarantee for accessing funding in most situations. Leasing is usually a medium-term financial instrument used to acquire new or second-hand assets.

The leasing sector can represent a decisive role in financing developing countries, which are characterized by a low capitalization of the banking system and less developed financial markets. Due to the low market financial in Romania, financing through banks and capital markets is available to large companies in particular, but small and medium size enterprises face numerous financing difficulties.

Although SMEs are considered to be the backbone of the economy, they have a limited range of financial instruments because of the restrictive eligibility conditions for contracting commercial bank loans. Usually, in financing developing countries, SMEs do not have sufficient collaterals or credit history, and thus can not access classic banking financing, while the leasing offers the opportunity to acquire a wide range of the assets needed to develop the company's operations.

By realizing a stable fiscal and legal environment applicable to the leasing sector, the authorities support the development of the real economy and implicitly of the most vulnerable sectors of the economy – SMEs.

The peak of the leasing market in Romania was reached in 2007, when the total value of the new leasing contracts was about EUR 5 billion, recording an increase of 51% compared to the previous year.

The fiscal code underwent significant changes in the second half of 2008, influencing the development of the financial leasing. Although the Romanian economy registered the highest growth rate in 2008 (7.3% compared to 2007), the value of the new leasing contracts decreased a little (- 3% compared to 2007), recording the first contraction.

The year 2009 was a turning point for the leasing market, when leasing companies being heavily affected by the economic crisis, so the total value of the new leasing contracts fell to EUR 1.3 billion, reaching a level similar in the year 2000.

Since then, although the economic conditions have been difficult, the total annual value of new leasing contracts did not show significant variations, reflecting the stabilization of the leasing market.

The financial crisis affected the leasing market in Romania, suffering the sharpest contraction between all countries considered, the penetration rate of financial leasing to GDP was 4.8% of GDP in 2008 versus 1.5% of GDP in 2013.

The low value of new financed leasing contracts can be attributed to the low investment demand of companies and the difficulty in repossessing the assets of customers who are unable to pay.

From the data presented, one can see a direct correlation between the GDP growth and the evolution of the financial leasing, although there is lag of 1-2 years between them.

When we have a decrease in the total value of the new leasing contracts for the previous year, a slowdown or contraction of GDP is observed next year, correlated with the decline of the leasing market.

Thus, the leasing market can be considered a barometer of the evolution of the economy in the medium term, sending early warnings, as it reflects the demand of financing companies through leasing operations, especially for SMEs, which are the main clients of the leasing companies.

Next, we will analyze the leasing market in Romania using statistical data provided by the Financial Companies Association in Romania – ALB in 2015 as well as presentations of the evolution of the financial leasig market in 2016, Q3-2017, closing 2017 and extracts from different specialized publications.

In the figure below (Figure 10) we can see the Romanian Leasing Market by Company Type in 2015:

Figure 10. Romanian Leasing Market by Company Type in 2015

Source: http://www.alb-romania.ro/statistici_2015.php

The chart shows the main categories of companies responsible for leasing transactions. The main component, a participant on the Romanian leasing market, is represented by NBFIs Banks' subsidiaries (for example Alpha Bank, BCR, BRD, Volksbank, Raiffeisen) holding a share of over 81% of the total volume of transactions registered in 2015. The other categories, NBFIs captive to producers (for example Afin, Renault, Porsche) with a market share of 13% and Independent NBFIs (for example TBI Leasing) with a market share of 6%.

In the figure below (Figure 11) we can see the Financial Leasing Market Evolution:

Figure 11. Financial leasing market evolution

Source: http://www.alb-romania.ro/statistici_2015.php

The chart shows the evolution of the leasing market in Romania for the period 2008-2015. The decline recorded during the financial crisis, which has significantly affected the leasing operations in Romania, is marked by a sharp contraction compared to many European countries.

The year 2010 marks the lowest value of the leasing operations, the total value reaching 1.1 billion Euros. This is justified by the decrese in companies' investment demands and the difficulty of reintroduction the assets with regard to clients temporarily incapacitated to pay.

During the period 2011 – 2012, the market leasing has a successive growth, which marks the economic evolution of Romania, but is followed by another period in which the leasing market is recording a new decline, corresponding to the post-crisis recession period.

The current data shows an improved situation of the market evolution, in 2015, the total value of the financial leasing operations amounting to 1.6 billion Euros, the evolution of the leasing market being directly proportional to the general economic situation of Romania.

Another important aspect is share the total of leasing operations in Romania to GPD. For the years 2015, 2016, the total volume of finance provided by leasing firms exceeds 1% of GDP, which is well below potential and below other European countries.

The financial leasing market concluded 2016 with a 20% increase compared to 2015 and a total new value of approximately 2 billion Euro, of which 77% are for the acquisition of vehicles.

We observe in the leasing market in Romania that the segment automotive assets (passenger cars and commercial vehicles) is with about 10% higher compared to the leasing market in Europe, in Europa representing 67% of total new volumes granted during 2016.

Equipment financing remains below potential in 2016, accounting for only 20% of total new leasing volum, lower than in the leasing market in Europe, where the equipment representing 29% of total new volumes granted during 2016. We notice that the real estate leasing market in 2016 representing only 3% of total new leasing volum in Romanian, lower than in the leasing market in Europe, where the real estate leasing does not exceed 5%.

Figure 12. The evolution of the leasing market (new leasing volum)

Source: Presentation ALB Romania in 2016

In Figure 12 we can obseve that the leasing market has the best results in 2016 since the beginning of the economic crisis, the dynamics of the total new leasing volum being two digits, due to the good evolution of the Romanian economy. Starting with 2014, we note the positive trend for each segment: vehicles, equipments and real estate, with accelerated growth for vehicles. For real estate growth is low because the level of investment is high and investors have become more prudent as a result of the financial crisis.

In the Figure 13 show the evolution of new leasing volumes per asset type:

Figure 13. The evolution of new leasing volumes per asset type

Source: Presentation ALB Romania in 2016

In Figure 13 we can observe that increase the segment vehicles represented 77% of total new volumes granted during 2016 is reflected by a reduction in equipments to 20 % and real estate to 3 %. In the period 2010-2016, the accelerated growth of the vehicle segment is reflected in the contraction of the other two segments: equipment and real estate.

New volumes leasing in the first nine months of 2017 increased by 14% compared to the same period last year and 2017 was concluded to approximately 2.2 billion Euro, demonstrating that growth is being maintained and in 2017.

Growth factors were financial leasing in the car sector (+ 24% in the first nine months of last year) and light commercial vehicles (+ 27%). For the heavy commercial vehicles, the trend was reversed (-2%), the demand being lower in 2017 compared to 2016.

The leasing sector was positively influenced by the increase in demand for new cars, which advanced 17% in the first three quarters of the year 2017 and second-hand vehicles grew by 70%.

The leasing for equipment has moderate growth (+ 10%) as investment in various sectors of the economy. Within them, agricultural equipment are the top, with a growth of 48%, because exist the leasing companies dedicated to the financing of this sector in the local market, at unbeatable costs, these being in a traditional business relationship with large machinery manufacturers from abroad.

Regarding the duration of financial leasing contracts, no new items appeared, with the average being between 4 and 5 years.

In the Figure 14 we can see Romanian financial leasing market structure by customer type:

Figure 14. Romanian financial leasing market structure by customer type

Source: http://www.alb-romania.ro/statistici_2015.php

In view of the structure of the leasing market according to the category of users, the situation shows that corporations have the largest share.

In each analysed year, we can see the share is over 97% of the total funding is for corporate, because most companies want to expand their own economic activities by purchasing equipment, machinery or other assets needed for development. Most legal entities that use leasing finance are small and medium institutions, for the reason that SMEs or new companies do not have the possibility to obtain credit through commercial banks. They do not have a credit history or the existence of collateral assets. As a result, in the current economic situation of Romania, leasing financing represents a significant advantage for SMEs.

In relation to other categories of users, they are composed of segments of retail and public and cover 3% of the total leasing market. Although offerings include various assets (vehicles, equipment, machinery, real estate) and oareacare flexibility of operations, retail segments and the public does not look so interested, most likely due to nedeductibilitatii tax, preferring a traditional financing on term long.

Concluding, the evolution this indicator in 2013, 2014, 2015 does not show any major changes, with the situation presenting similarly in each period of recent years, with very low fluctuations.

In the Figure 15 we can see Romanian leasing market (equipments and vehicles) structure by acquisition type:

Figure 15. Romanian leasing market structure by acquisition type

Sourse: http://www.alb-romania.ro/statistici2015.php

An interesting statistic comes from the type of asset used (new or second-hand assets). Notable is the fact that the share of second-hand assets registered a significant increase in the last year taken for analysis, but this growth continued in 2016 and 2017. The increase in second-hand assets in the portfolio of leasing companies came as a result of financial crisis, as a consequence of the fact that the purchasing power in Romania has diminished and customers have looked for similar alternatives but at low costs.

This can be explained by the fact that operational leasing transaction are increasing, implying reuse of assets: vehicles, machinery and equipment.

This increase in second-hand assets in the company's portfolio may have a negative impact on Romania's economy as a result of encouraging the population to buy re-used products which would obstruct the development of manufacturing enterprises.

In Figure 16 is presented the Romanian financial leasing market structure by duration of contract:

Figure 16. Romanian financial leasing market structure by duration of contract

Sourse: http://www.alb-romania.ro/statistici_2015.php

In Figure 16, it can be noticed that the largest share for leasing financing is that of contracts with a duration of 4-5 years.

In the coming years, as the financial leasing perspective in Romania, it is wanted to increase the real estate segment, which requires long term contracts.

The segment with the higher impact on the leasing market is that of the vehicles. In this context analysis is performed on the main components by the vehicles.

The Figure 17 present vehicles’ financing weight in the financial leasing market:

Figure 17. Romanian financial leasing market – vehicles’ financing weight

Sourse: http://www.alb-romania.ro/statistici_2015.php

The graph above highlights that between 2012 and 2015, the passenger cars has the highest share, followed by the category of heavy commercial vehicles. Even if the passenger cars have the largest share in total vehicle financing, this segment has been declining during this period and the category of commercial vehicles has increased.

In Figure 18, we can analize vehicles’ financing by value:

Figure 18. Romanian financial leasing market – vehicles’ financing by value

Sourse: http://www.alb-romania.ro/statistici_2015.php

As expected in periode 2012-2015, the passenger cars are first in this ranking with a value of 521,625 million Euro for 2015, recording a 13% increase over the previous year. It is noting that the segment of heavy commercial vehicles has a significant increase in the market, establishing annual increases, doubling the value in 2015 compared to 2012. Regarding the light commercial vehicles with a value of 124,324 million Euro for 2015, these recording a increase of 27% over the previous year. Other vehicles segment with a value of 16,234 million Euro for 2015 recording a decrease of – 30% over 2014, but this value is less significant comparative with the others segments analyzed.

The results in Figure 17 and Figure 18 are the effect the instability of the automobile industry which has seen major fluctuations in Europe in the of late years. Also, the increase in the level of contracting of heavy commercial vehicles corresponds to the constant development of the Romanian economy.

In Figure 19 we can see Romania leasing market – equipment financing 2014 versus 2015:

Figure 19. Romanian leasing market – equipment financing

Sourse: http://www.alb-romania.ro/statistici_2015.php

Equipment leasing is a long-term solution for cashless companies or an entrepreneur who does not want to invest their own money. All types of equipment can be leased in our days. This may range from complex machines for a factory to coffee machines in an office.

We can see that in 2015 the financing of agricultural equipment remains the largest segment, even if declined from 26% in 2014 to 24% in 2015, this segment will increase in the next period, because the leasing purchase became eligible for the acquisition European funds in the financial section by the National Rural Development Programme Romania 2014-2020. The condition is that after no more than five years, the beneficiary will become the owner of the equipment purchased by leasing .

Other important equipment leasing segments: construction, electrical devices, medicale (in rising in 2015 compared to 2014) and food & beverage, metal processing, forklift (in decreasing in 2015 compared to 2014).

As opposed to financial leasing, operational leasing implies, in the true sense of the word, the use of the asset financed over a limited period of time, without taking risks and benefits to the owner for the punctual solution of specific activities.

The user has decided, since signing the contract, to return the asset financed at the end of the lease period, and the lessor would take the risk of realizing the value remaining unamortized at the end of the contract.

An operating lease is useful when an enterprise needs to replace its assets on a regular basis by exchanging old assets for new ones at regular intervals. For example, the lessee has decided to change the photocopier every two years (when the manufacturer's warranty period expires), he may choose operating leases to have always the latest generation equipment.

Cars are the most purchased through operating leasing. Operating leasing does not imply any advance, but only monthly payment of a single invoice to cover the costs of all services. The range of related services is diversified, covering all customer needs, from finance the acquisition, maintenance, insurance, periodic technical inspections, to roadside assistance. In the case of operational leasing, at the end of the contract period, the car returns to the leasing company.

Figure 20 show the percentage of operating lease in total vehicles registrations (passenger cars + light commercial vehicles):

Figure 20. The percentage of operating lease in total vehicles registrations

Sourse: http://www.aslor.ro/statistici/

Based on the analysis of the graphs, we notice that the percentage of operating lease in total vehicles registrations have increased in the period 2007-2013 and between 2014 and 2015 has declined slightly each year. At the end of 2016, the percentage forecasted in May 2016 was not reached.

Approximately 14,400 vehicles were registered by operating leasing companies out of a total of 108,000 cars and light commercial vehicles registered, accounting for 13.3% of total new registrations in 2016, according to the press release of the Association of Operational Leasing Companies (ASLO) of Romania.

In 2016 the share of full service (insurance, periodic technical inspections, to roadside assistance) in the portfolio of leasing companies increased by over 7%, as a proof of increasing the understanding of the concept and benefits of operating leasing.

The operating leasing market is growing in 2017, and the most interested in such contracts are multinational companies, but in the last few years, operational leasing is also useful local businesses and start-up companies.

The following section contains the final provisions of the thesis, presenting the general conclusions on the elements identified during the analysis.

2.3. Leasing versus bank credit

Leasing, as a financing operation, is derived from the classic credit operation and is made up of the need to expand it, with the purpose of supporting investment, completing the sphere of innovation and action of money trading.

The leasing operations in Romania prove to be an alternative for the financing of assets of any kind.

The main difference between leasing and bank credit is the ownership of the fianancial asset.

In the case of the leasing operation, the owner of the asset remains the leasing company, the user receiving only the right of use on the respective asset against a periodic payment, called the leasing rate. At the end of the leasing period, the user may choose to purchase the asset, contract extension or even termination of contractual relations, but the user becomes the owner of the asset only after the buying option has been expressed, payment of residual value and observance of all contractual obligations.

In the case of a bank loan for the purchase of any type of asset, the borrower becomes the owner of the asset in the first moment, having the right to dispose of this in any time of the execution of the contract, respecting the obligations assumed by the bank. Thus the main difference is the transfer of ownership. In the case of credit, the purchaser becomes the owner of the asset at the moment when this is purchase from the supplier, subsequently paying the credit rates. Under the lease, the asset remains the property of the financer until the last installment is paid. The major advantage of financial leasing is that the lessee records the asset in its own patrimony, with the right to calculate the afferent depreciation, without being the owner of the asset and without being obliged to become.

Another difference is to highlight the basis of calculation of both the amount of financing and the input value, and the calculation is execute on different bases. In the case of bank credit, the purchase price will include all the additional costs of the asset, the total price includes the value added tax, any excise tax, the cost of transport and insurance to the destination and so on. In the case of leasing, the purchase price includes the transportation and insurance paid until destination CIP (Carriage and Insurance Paid To) or at a price including the transportation paid until destination CPT (Carriage Paid To), excluding any extra cost or taxes other than price from the supplier.

The interests, the commissions and other fees are different in value, the difference being given to the terms of financing and efficiency, these criteria making another distinction between the two forms of lending. If are usually required for a bank loan additional bank guarantees or collateral , in the case of leasing it is assumed that the asset itself is the guarantee, so the procedures for obtaining financing are simpler and more accessible to larger categories of clients.

If is taken into account the Romanian leasing legislation, the early closing of the leasing contract is not valid until one year, this being exclusively due to the nature of the contract, while in the case of the loan, the owner can call at any time the variant of the anticipated ending of the contract. The early repayment of the borrowed amount is allowed both in the case of leasing and the bank loan with the payment of predetermined costs.

The Romanian legislation in force institutes a number of advantages in relation to the acquisition of leasing assets, thus trying to support the investments. One of these advantages is determinated by the facility introduced in the case of the acquisition of goods predisposed to be taxed in report of the customs debt, calculated at the end of the lease term at the residual value rather and not the full value of the goods, as in the case an ordinary purchase. On the other part, taking the example of an asset produced outside the European Union, the Romanian legislation stipulates that the user is obliged to pay the customs duty calculated to the residual value of the asset at the moment of the conclusion of the lease, which can not be less than 20 % of the input value of the asset. In this way the elements of the customs debt will be paid at the end of the leasing period and will be calculated at the residual value. In the case of a credit contracted for the acquisition of the asset outside the European Union, the consumer will pay the customs debt, respectively customs duties and the customs commission, calculated at the integral value of the asset.

Leasing is more advantageous than credit for SMEs and start-up companies unable to obtain a credit from a commercial bank because they do not have a robust credit history for to contract a traditional lending and the finance by leasing does not require collateral assets from customers.

Although leasing companies offer diverse financing tools and a flexible financing of the main types by assets (equipment, vehicles, real estate), due to tax deductions, companies occupy a higher share in the total leasing market than private individuals which prefer financing through loans from banks.

An advantage of financial leasing compared to a bank credit is the customer's accessibility to more sales channels: the retail bank network, directly from leasing companies, from brokers, dealers or even from producers.

Similarities between bank lending and financial leasing are that both the user and the borrower may be the owners of the assets after all the payments have been made, on the condition that both the user and the borrower to respect the terms and conditions of the financing contracts. In both cases, the risks and costs of ownership, such as maintenance and insurance of the goods, remain the responsibility of the user and the borrower. Neither the leasing company nor the bank will not benefit from the increase in the value of the asset.

From an economic point of view, the decision to lease or make a loan depends on the total cost of the acquisition, including the value of the rates.

Taxes are a powerful argument for choosing leasing instead of buying the asset by credit, but it is not the alone that could explain this choice. It is important to consider the non-monetary benefits, such as the contract of leasing that are more flexible by point of view of customer needs: the option to renounce the lease before the date of the contract closing, the possibility to renew the contract by additional periods, the option to buy the asset at the end of the contract.

Leasing also has another important advantage over standard bank credit, in the sense that it is more efficient in regarding of leasing time, the assessment keeps less time, while the approval of bank credit applications takes a longer period of time and leasing finance has higher chances in compared with a bank credit because under the lease the risks are easier to control. This has led many banks to set up a leasing division for these to have more customers.

The size of the enterprise is another reason for contracting an asset in leasing. Thus, it can be said that in a small company the financing decision is determined more by the growth opportunities and the big companies take this decision for fiscal reasons. It is scientifically proven that leasing allows small companies to survive and develop, and the results show that less profitable firms are more predisposed to make a lease in front of profitable companies. In the case of credit institutions, the lender has the difficulty of accurately estimating the risk for each client, given the diversity of projects that clients want to realize.

Financial leasing can also stimulate investments and the activity investors. Due to the careful financial monitoring of the leasing company on the user, investors' confidence in a company may increase. The stability and the fact that a company is being analyzed by the lessor can also be taken as a signal to increase the company's productivity and profitability and then the company becomes more attractive to investors.

At the base of leasing access is the capacity of a business to increase revenue by using the asset and this ability is verified by the financier before approving the financing. The financier must ensure that the company is capable to make the lease payments on time and benefit from the surplus income to continue develop the business.

For a comparative analysis of the credit and the financial leasing, we used a credit simulation and a financial leasing offered by car manufacturer Dacia – brand of the Renault Group for the car Dacia Logan SL Plus 1.0 12 V 73 CP in value 7,980 Euro (included VAT).

Figure 21 show the credit simulation for credit duration by 5 years, for a standard credit and a credit Dacia all inclusive (car warranty and included revisions) for a period of 3, 4, 5 years:

Figure 21 – The credit simulation for credit duration of 5 years

Sourse: https://finantare.dacia.ro/

In Figure 21 – we can observe that for standard credit (5 years), no included revision and free rates and this is the most disadvantage and the most popular choice is credit Dacia All inclusive 5 year. Also, we can see that monthly fixed rate increases slightly, the interest fixed decreases and the number by the monthly free rates rises with the increases duration all inclusive of the contract (car warranty and included revisions), for the same contractual period of 5 years.

The Figure 21 shows that in the case of the credit, the advance rate may be between 5%-70% and credit duration may be between 12 months – 60 months. The total cost of the credit includes: folder analysis fee – 270 lei, monthly administration fee – 45 lei, insurance Trafic Accident – 12 lei / month, registration fee in the Electronic Archive for Security Interests in Movable Property (AEGRM) – 65.70 lei. It is used the exchange rate 1 Euro = 4.6796 lei.

For a comparative analysis of the offered by the financiar leasig simulation with a carefree period of 3 years, 4 years, 5 years (revisions included), a contract duration by 5 years, advance rate by 35% (7,980 Euro * 35%= 2,793 Euro) and residual value 0.1% (7,980 Euro*1%=7.98 Euro), we centralize the dates in Table 1.

Table 1 – The financiar leasig simulation with a carefree period of 3 years, 4 years, 5 years (revisions included) and a credit duration by 5 year

Sourse: https://www.dacia.ro/promotii-si-finantare/promotii-finantare.html

TheTable 1 show that:

– at the end of the leasing contract, the residual value paid is small by aproximate 8 Euro;

– monthly fixed rate increases, the interest fixed decreases and the number by the monthly free rates rises with the increases duration by carefree of the contract (car warranty and included revisions).

For a comparative analysis detailed of the offered by the credit, we realize the credit simulation for credit duration by 3 years, 4 years and 5 years, for a standard credit and a credit Dacia all inclusive (car warranty and included revisions) for a period of 3 years, 4 years, 5 years and advance rate by 35% and we centralize the dates in Table 2.

Table 2 – The credit simulation for credit duration between 3-5 year, for a standard credit and a credit Dacia all inclusive for a period of 3, 4 and 5 years and advance rate by 35%

Sourse: https://finantare.dacia.ro/

The dates in Figure 21 are also centralized in Table 2. In addition to the observations made on Figure 1 and following the analysis of the dates in Table 2, we can add that:

– monthly fixed rate decreases with the increase in the duration of credit;

– the advance rate may be lower (up to 5%), but the disadvantage is that the monthly fixed rate will be higher.

From the analysis of Figure 21, Table 1 and Table 2 we note the followings:

– monthly fixed rate for financiar leasing simulation is smaller comparate with credit;

– monthly fixed rate increases slightly, the interest fixed decreases and the number by the monthly free rates rises with the increases duration warranty and included revisions, for the same contractual period of 3 years, 4 years and 5 years;

– the interest fixed decreases with increase the duration of the contract;

– because it is an offer from a producer of goods, at the end of the leasing contract, the residual value paid is small.

In conclusion, we can say that the leasing from the producer in compared with the credit is more advantageous, this being a way for the producer to increase his sales.

Conclusions

Leasing is used in the procurement of tangible assets, being considered as an important market instrument. From an economic point of view, leasing is a way of reorienting investments by attracting new sources of finance to the economy, representing a solution for launching on the market of products with limited demand and low purchasing power. Leasing can be used to enter new markets and conclude new partnerships, being an important factor in developing foreign trade, thus attracting important financial resources in safe conditions.

Practically, leasing provides full financing for an investment through borrowed funds without the beneficiary taking precautionary measures, as opposed to traditional investments where the beneficiary enterprise support part of the value of the investment. First of all, enterprises pursuing business expansion and performance enhancement use leases as financing techniques.

The leasing market in Romania experienced a gradual development, becoming a viable alternative to funding equipment and vehicles, but less used for real estate investments.

The economic crisis has transformed the market leasing into a constant liquidity provider for the private sector, whose funding was limited to the period of the financial crisis, providing real support economy especially small and medium enterprises (SMEs), the main beneficiaries of financing through leasing.

In principle, leasing is asset financing and ownership of the asset provides a sufficient guarantee for accessing funding in most situations. Leasing is usually a medium-term financial instrument used to acquire new or second-hand assets.It's born the following question: Why a company would choose equipment leasing for business expansion and performance enhancement?

A company can get the equipment it needs for the business in the following three ways: it can acquire the equipment with cash, borrow money (the company take loan from the bank) or to lease the equipment. Equipment leasing offers an excellent opportunity for an enterprise to improve without incurring too much initial costs.

The leasing is a better option than buying the equipment for following reasons:

– It determines tax benefits;

– It results in economing the cost of purchase a completely new asset;

– It involves lower monthly payments;

– It improves the company's workflow;

– It assures modernization with the latest technology at a reasonably cost.

To purchase a goods in leasing is concluded the leasing agreement between the lessor (financier, owner) and lessee (user) which permit of the lessee to use the good for a defined period, in exchange for monthly payment as the leasing instalment and at the finish of the leasing period, the lessor undertakes to permit the user to choose: to buy the good, to extend the leasing agreement or to end the contract relationship.

The main two categories of leasing are: financial leasing and operational leasing. The leasing classification was made on the basis of complex rules and features, and in the case of operational leasing, the asset and the payment obligation for it are not recorded on the balance sheet of the client.

The financial leasing contract has a purpose, generally, to acquire the asset by the user by fulfilling the following conditions:

– The lessor transfers the user the ownership of the asset to the end of the contract period;

– The user has the option of acquiring the asset at a lower presumed price than the market value at the date the option can be exercised, as of the start of the lease is certain that this option will be achieved;

– The lease term applies for the economic life of the asset, even if the title of property is not transferred;

– The total value of the leasing rates, excluding the additional costs, is more or equal to the carrying amount of the asset, represented by the value of the asset for the lessor;

– The assets in question are lessee specific and can only be used without major changes.

Under a finance lease, the user can take over the right to use the asset that is during his lifetime and the responsibility for maintenance, repairs, taxes, insurance, and direct relationship with the supplier.

An operating lease allows the lessee to use the asset for a limited amount of time, but transfers the lessor both the risks and benefits of ownership of the asset. The lessor takes the risk of the residual value of the funded asset.

A dynamic and powerful leasing sector can be a real support for a country's economic growth, as it creates access to finance for a larger scale of companies than those that meet commercial banks' risk requirements. Thus, leasing is a significant source of financing that can stimulate job creation, produce added value in the economy, better labor productivity, increase intern offer and make exports performing.

The conclusions of the theoretical chapter were structured in the form of a SWOT analysis of the leasing market:

Strengths:

A strong legal basis to ensure sustainable practices;

Improving tax treatment and the process of taxing compared to traditional loans customer processes;

Greater flexibility and quicker approval of customer leasing requests;

– Provides support for new businesses and small and medium enterprises (SMEs), the main beneficiaries of financing through leasing than traditional lending;

– Generates added value for companies that are unable to fund themselves from other sources.

Weaknesses:

– The legislative pressure in recent years and adaptation to compliance current standards rapid;

– The higher cost of financing;

– Low leasing awareness among clients.

Opportunities:

– European fundings for increase of financing sources;

– Competition from non-domestic leasing companies;

– Less developed market in Romania than in other CE countries and this implies the growth potential leasing;

– Public private partnerships.

Threats:

– Competition from leasing companies outside the country;

– Bureaucracy that affects customer satisfaction;

– Difficulties in returning assets in case of non-payment.

The leasing market in Europe shows a period of steady growth in recent years. It can be seen that countries with a strong economic capacity hold the highest shares, while countries with a similar economy to Romania, are ranked roughly the same or below.

Leaseurope has published the results of its preliminary survey for 2017 of the European leasing market. The preliminary data indicate for 2017 that the leasing market recorded another year of growth, similar to the high scores observed in 2016 as follows:

– The total new business volumes increased by 9.6% compared to 2016;

– The outstanding portfolio rising by 4.9% of the member associations reporting, where outstanding contracts for equipment maintain stable around the level as previous year and real estate had a contraction;

– New business volumes for vehicles increased by 9.3% in 2017, over the past eight years, continuing with an increasing trend;

– Equipment leasing increase of 12.9% compared to last year, but the real estate leasing market decreased by 3.8%;

– In many countries, due to economic growth, to result increase the investments in 2017 and leasing equipment increased more than in previous years, exceeding the vehicle sector. This shows that leasing is used as a form of financing in Europe;

We can conclude about the current situation in Romania, reported to the European leasing market as follows:

– The total value of the financial leasing operations are amounting of approximately 2 billion Euro in 2016, recording a 20% increase compared to 2015, the growth being above the average reported by the European leasing market which is 10.30% according to Annex 01;

– New volumes leasing in the first nine months of 2017 increased by 14% compared to the same period last year and 2017 was concluded to approximately 2.2 billion Euro, demonstrating that growth is being maintained and in 2017;

– The leasing sector in 2017 was positively influenced by the increase in demand for new cars, which advanced 17% in the first three quarters of the year 2017 and second-hand vehicles grew by 70%.

– An interesting statistic comes from the type of asset used (new or second-hand assets). Notable is the fact that the share of second-hand assets registered a significant increase in the last year taken for analysis, but this growth continued in 2016 and 2017. The increase in second-hand assets in the portfolio of leasing companies came as a result of financial crisis, as a consequence of the fact that the purchasing power in Romania has diminished and customers have looked for similar alternatives but at low costs. This can be explained by the fact that operational leasing transaction are increasing, implying reuse of assets: vehicles, machinery and equipment.

– The leasing for equipment has moderate growth (+ 10%) as investment in various sectors of the economy. Within them, agricultural equipment are the top, with a growth of 48%, because exist the leasing companies dedicated to the financing of this sector in the local market, at unbeatable costs, these being in a traditional business relationship with large machinery manufacturers from abroad.

– The financing of agricultural equipment remains the largest segment will increase in the next period, because the leasing purchase became eligible for the acquisition European funds in the financial section by the National Rural Development Programme Romania 2014-2020. The condition is that after no more than five years, the beneficiary will become the owner of the equipment purchased by leasing.

– The financial leasing market could increase in 2018 compared to 2017 by 10-15%, according to the estimate of the Association of Financial Companies – ALB Romania, but on a normalized market should exceed 3 billion euros. The target for 2020 would be to increase the share of the financial leasing market to 2 % of GDP.

The evolution of the Romania leasing market shows a period of steady growth in recent years, being directly proportional to the general economic situation of Romania and the forecasts for the years 2017 and 2018 show that the European economy is stabilizing after the crisis and the European leasing industry has the role of supporting the economy.

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*** www.alphaleasing.ro – page Alpha Leasing Romania IFN

*** www.alb-romania.ro – page of the Financial Companies Association in Romania – ALB

*** www.aslor.ro – page of the Association of Operational Leasing Societies in Romania

*** www.aslr.ro – page of the Association of Leasing Companies in Romania

*** www.bnr.ro – page of the National Bank of Romania

*** www.btleasing.ro

*** www.ceccarbusinessmagazine.ro – weekly online publication published by CECCAR

*** www.finantare.ro

*** www.gandul.info – page of the Newspaper

*** www.leaseurope.org – page of the European Federation of Leasing Company Associations

*** www.leasing.ro

*** www.piatafinanciara.ro – page of the Monthly Financial Banking Magazine

*** www.rasfoiesc.com

*** www.zf.ro – page of the Financial Newspaper Magazine

Annex 1 – Leasing market in Europe

Annex 2 – Leasing market in Europe

Annex 3 – Leasing market in Europe

Annex 4 – Top European Leasing Companies