Financial Leasing SupervisionFinancial Leasing Supervision

Radovan JelaRadovan Jelašićšić – Governor of the National Bank of Serbia – Governor of the National Bank of Serbia

2626 January January 2006 2006

Legal frameworkLegal framework

• May 2003 Law on Financial Leasing – defining financial leasing and basic

rights and liabilities of participants in financial lease operations;

• July 2005 Amendments and Supplements to the Law on Financial Leasing

– NBS – institution which issues licenses for the performance of financial

lease operations, gives consent in respect of the appointment of

management bodies, conducts supervision and undertakes corrective

measures.

Definition of financial leasing vs. operational leasingDefinition of financial leasing vs. operational leasing

• Financial leasing is an arrangement where the lessor:

– concludes a financial lease contract with the lessee whereby the

authorities to keep and use the object of lease for an agreed period of time are

transferred to the lessee in return for a series of regular agreed payments;

– concludes a supply contract with the supplier whereby the lessor acquires the

right of ownership over the object of lease; the supplier and object of lease are

determined by the lessee (the main difference between financial and operational

leasing);

• The owner of the object of lease is the lessor, whereas the contract may

stipulate the right of the lessee to purchase the object of lease following the

expiration of the lease period;

• The object of lease may be any movable non-consumer good; the financial

lease contract may be concluded for a minimum period of 2 years.

Financial leasingFinancial leasing vs.vs. bank loansbank loans

• Financial leasing – financial service similar to bank loan (financing of the

procurement of object, repayment in installments, interest, bookkeeping

records, etc.);

• The most important features of financial leasing differentiating financial

leasing from bank loan:

–The lessor is the owner of the object of lease during the entire lease contract

period;

–Financing is approved for a specific object;

–The lessor procures the object of lease, not the lessee;

–The object of lease represents at the same time a collateral for collection, due

to which lessors usually do not require additional collateral;

–The lessor is fully protected in the event of the ruining or damaging of the

object, failure to pay the leasing fee (return of the object of lease to the lessor’s

tenure by a special procedure – 3+3 days), bankruptcy or liquidation of the

lessee (right to separate recovery).

Number of financial lessors in SerbiaNumber of financial lessors in Serbia

2003.

Маy – Law on FL

+210 +1

• SOGELEASE Srbija (newly

founded with the NBS

license)

• 13 existing lessors

harmonized their operations

with the amendments to the

Law on FL

• 2 new applications for the

NBS license

2004. 2005. 2006.

Јuly 2005 – Amendments

and Supplements to the Law

on FL

• Hypo Alpe-Adria Leasing

• Raiffeisen Leasing

• LB Leasing

• LILIPAKS

• VB Leasing

• S-Leasing

• Delta Leasing

• Zastava Istrabenz

• KB Leasing

• TBI Lizing

• HVB Leasing

• Porsche Leasing

SCG

•ProCredit Leasing

+1 + 2?

NBS operating

license until 26

January

?

Achieved turnover of the existing financial lessorsAchieved turnover of the existing financial lessors

Balance sheet assets of the lessors in relation to the balance sheet assets of banks:

323

441

54

1%

6%

5%

0

100

200

300

400

500

31.12.03 31.12.04 30.6.05*

0%

2%

4%

6%

8%

Balance sheet total in million EUR

In relation to the balance sheet total of banks

In million EUR

Structure of achieved turnover (ALCS data)Structure of achieved turnover (ALCS data)

2004 I-IX 2005

By the object of financing

1. Passenger vehicles 32.4% 41.8%

2. Commercial vehicles 33.6% 28.4%

3. Production equipment 25.5% 21.8%

4. Other 8.5% 8.0%

By lessee:

1. Industrial production 33.7% 25.1%

2. Private sector 30.5% 34.3%

3. Natural persons 4.2% 6.3%

4. Other (farmers, entrepreneurs, etc) 31.6% 34.3%

Typical financial leasing termsTypical financial leasing terms

• Contracted on a period from 2 to 5 years;

• leasing fee is paid on a monthly basis and contracted with a foreign

currency clause;

• Interest rate is in most cases variable and tied to the changes in the agreed

benchmark interest rate (EURIBOR);

• VAT is paid on the total amount of leasing fee, including interest;

• Costs of the approval of financing (application processing) may amount up

to 2% of the value of the object of lease;

• Other costs following the conclusion of lease contract: entry into the

Register of Financial Lease Contracts, insurance of the object of lease, fee

for the purchase of the object of lease, etc.

Financial lessors’ sources of financingFinancial lessors’ sources of financing

• External borrowing is the most frequent source of financing of financial

lessors:

34

213

320

423

0

50

100

150

200

250

300

350

400

450

31.12.03 31.12.04 30.6.05 30.11.05

in million EUR

179

210

Objectives of the supervision of financial lessorsObjectives of the supervision of financial lessors

• Boosting the confidence of the public into the financial sector and leasing;

• Ensuring the transparency of the financial market;

• Financial market development based on fair competition;

• Consumer education and protection;

• More efficient implementation of consolidated supervision (connection

between lessors and banks).

New secondary legislation (1/2)New secondary legislation (1/2)

• Issue of licenses ad consents

– OBJECTIVE: safeguarding of the financial market integrity (business reputation

of the founder and management bodies);

• Minimum requirements for the conclusion of financial lease contract and

manner of disclosing the leasing fee

– Minimum purchase value of the object of lease;

– Mandatory documentation in the lessee’s file;

– Uniform manner of disclosing the leasing fee – comparability between financial

leasing and other types of financial services;

– Manner of the advertising of services ;

– OBJECTIVE: unification of financial lessors’ operations, transparency of the

conditions of financing, consumer protection.

New secondary legislation (New secondary legislation (22/2)/2)

• Reporting

– OBJECTIVE: possibility of performing off-site supervision of financial lessors,

timely detection of negative trends;

• Detailed terms and conditions of supervision

- OBJECTIVE: regulating the off-site and on-site supervision procedure and

defining the criteria for the pronouncement of corrective measures;

• Reserve balance

– OBJECTIVE: Curtailment of external borrowing, redirection to domestic sources

of financing, fair competition.

Additional informationAdditional information: :

Financial Leasing Supervision Department

23 Skadarska

11 000 Belgrade

Phone: 011/3234-019

Fax: 011/3229-643

E-mail: lizing@nbs.yu