Macheta Licenta En Alexander Toporiste 26 04 2018 [309601]

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 ……..

1.1. Concept of leasing 6

1.2. Classification of leasing operations 8

1.3. Stages of leasing process 10

1.4. Advantages and disadvantages of the leasing 11

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

2.1. Leasing market in Europe 14

2.2. Leasing market in Romania

2.3. Comparison of leasing with other forms of investment

Conclusions

References…………………………………………………………………………..

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, businesses can borrow these resources directly 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 system (a [anonimizat], the first purchases the good at the beneficiary's indication and puts it at its provision against regular payments).

A distinction is made between operating leasing and financial leasing.

In the first case, the property remains with the "locator" after the end of the agreed period; in the second case, at the end of the period, the user acquires the asset he "leased" by paying a "residual value" (the leasing is similar to a sale in installments and with a "credit" situation provider ").

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

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 debate its advantages and disadvantages.

In chapter II, we will follow the evolution of the leasing market in Europe and then in Romania.

The reason I chose this work is that it refers to an area at the beginning of its development in Romania, but very developed in Europe, and this is precisely a careful observation and full understanding of the complexity of the market economy mechanisms: not ownership of fixed assets generates profits for the company but use 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 a 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, gave it to the entrepreneurs.

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, with 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 follows that leasing, as a trade technique, is present in the economies around the world, due to the advantages 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 not to strike their movable and immovable property by establishing a mortgage or a 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 thing 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 arrangement calling for 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 abide by various conditions regarding their use of the property or equipment. For example, a person leasing a car may agree that the car will only be used for personal use.

From an economic point of view, leasing is a source of funding, based on a contract specific, the lender offers the necessary funds for the entire investment. During the contract, the lessor (the owner) allows the lesse 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 lesse/user has the right to choose his insurance company with the agreement of the leasing company.

Income earned by lessees/users comes from the use of the property, not its 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 and in this case the lease is in fact a means of financing the lessee/user for the purchase 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:

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 the participants in the leasing cycle.

The lessor (financier, owner) – may be a financial company, a holding company, an investment bank or 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, it only collects 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 arc 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 investment funds that are pursuing the tax evasion;

– 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.

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. Upon 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 insurance, repairs, etc.). Upon expiration of the contract, the beneficiary loses the right on the wicked 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.

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.

Renting an operation requires that the cover only part of the object of the contract price. This time, the focus is on services provided by the leasing company, with a direct relationship between the price of purchase and rental return. 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 export 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 the business 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 redeem 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 or leasing operations, are short or very short term leasing operations and include day or hour rental, in particular means of transport or construction equipment: cranes, excavators, etc. These are considered by specialists as forms passing from regular rental to leasing;

– Shareholder leasing is a financial technique set up by the Groupement Français d'Enterprises and a definitive credit bail d'action, invented to prevent the growing demands of small and medium-sized businesses to attract funds;

– Master Leasing (container leasing), which is usually carried out by specialized companies dealing with the container park business. 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.

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 mandatory;

– The constant amount of rent 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 from 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 at 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 risks 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, it will no longer resort to leasing and it will appear to be unsatisfactory. However, a number of 'hidden costs' that occur in the case of these types of financing by credits, for example: payment of an advance, solicitation of guarantees, insurance, etc. and must be taken into account.

Disadvantages or advantages of leasing operations exist, but they should not be absolutized in either one sense or another, but should be regarded as complex, extremely useful operations.

Chapter 2

EVOLUTION AND TRENDS REGARDING THE LEASING MARKET

2.1. 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 columns 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 leveleds 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. New leasing volumes per asset type: equipment inclusive vehicles and real estate (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. New 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 29% 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. New 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, big (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 new leased equipement volumes per asset type in 2016

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

In Figure 7 we can see that the ships, aircraft, railway, and rolling stock segment growth rate in 2016 grew by 12.5% compared to 2015 and 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 equipement volumes

In contrast, computer&business machines was recorded a decrease of -7.4% in 2016 compared to 2015 for new leased equipement 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 New 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 New real estate leas ing 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

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 development of financial leasing market

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, estimates 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 – the 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, holding a share of over 81% of the total volume of transactions registered in 2015. The other categories, NBFIs captive to producers with a market share of 13% and Independent NBFIs with a market share of 6%.

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

Figure 11 – the 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 marketis 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.

At the ALB Romania National Conference on 28.11.2016 it was estimated that the financial leasing market will end 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 see in the leasing market in Romania, 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, accounting for only 20% of total new leasing volum and real estate leasing representing 3%, lower than in the leasing market in Europe, where the equipment representing 29% of total new volumes granted during 2016 and real estate does not exceed 5%.

In the Figure 12 we can see the evolution of the leasing market (new leasing volum) and in the Figure 13 show the evolution of new leasing volumes per asset type:

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

Source: Presentation National Conference ALB Romania in 28.11.2016

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

Source: Presentation National Conference ALB Romania in 28.11.2016

In Figure 13 we can observe that increase the segment automotive assets representand 77% of total new volumes granted during 2016 is reflected by a reduction in equipments to 20 % and real estate to 3 %, this being reflected throughout the analyzed period 2010-2016.

New volumes leasing in the first nine months of 2017 increased by 14% compared to the same period last year, estimated at the end of 2017 to 2.2 billion Euro.

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, the trend was reversed (-2%), the demand being lower this year 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 and second-hand vehicles grew by 70%.

Equipment leasing 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

Sourse: 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 analyzed 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.

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.

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/statistici_2015.php

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 we can see Romanian financial leasing market structure by duration of contract, where it can be noticed that for leasing financing the largest share is the contracts with a duration of 4-5 years:

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

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

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.

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

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

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

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

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 and streamlining 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.

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*** www.btleasing.ro

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Annex 1 – Leasing market in Europe

Annex 2 – Leasing market in Europe

Annex 3 – Leasing market in Europe

Annex 4 – Top European Leasing Companies