Monday, May 14 2012 17:31
One should be able to cash even on market failures
ArmInfo. ArmInfo's Interview with Arsen Bazikyan, Deputy CEO of ACBA Leasing
Mr.Bazikyan, what was the preceding crisis year like for the market of leasing services? How did ACBA Leasing work in 2011 and what tasks has it got for 2012? Will it be a year of long- expected changes in the leasing market?
The year 2011 was a fruitful year for the company. We were able to overcome the financial crisis and, by the way, coped with this task even better than some banks and credit organizations. We also fixed quite good results for the key financial indices. The company's tasks for 2011 were not only successfully fulfilled, but even overfulfilled. In particular, the leasing portfolio grew by 35%. This means that last year the investments in economy via leasing transactions were at least doubled. The profit of the company grew approximately by 25% versus 2010. We are going to be even more active during the post-crisis period.
What growth in leasing transactions is the company going to ensure in 2012?
We have quite ambitious plans. In 2012 the lease financing will be increased by 30%. But this is a very pessimistic forecast. In fact, we hope for a much more essential growth, which will be ensured thanks to our new office that was opened in April 2012. There are all the favorable conditions for provision of up-to-date leasing services, including leasing of commercial property we launched in 2011.
Our economists very often say that the crisis creates good opportunities for cheap modernization of production. Are the entrepreneurs going to use these opportunities?
Our company considers that the post-crisis period is a unique opportunity to intensify the process of resumption of the fixed assets and thereby to become more competitive in the market. I am glad to say that many local entrepreneurs realize this opportunity. And the number of applications proves this - in April versus March the applications for lease financing grew approximately by 200%.
How realistic is the cheap modernization today?
Over the past few years the value of the permanent assets dropped by approximately 15-20%, first of all, due to the worldwide decline in sales of equipment facilities because of the crisis deceleration of the economic growth. But according to our estimations, by mid 2012 the prices in international markets will be restored. But we are trying to retain the current prices for our customers and relieve them of additional and unplanned costs.
You have already mentioned that last year you introduced leasing of commercial property. Would you tell us about the advantages of this product? How many transactions did the company conclude in 2011?
Unfortunately, I should say that this product has no big demand in the market. We supposed commercial leasing to become one of the dynamically developing products right after its introduction. But our forecasts failed to come true. There are a lot of objective reasons for that, but the key obstacle to the development of commercial leasing in Armenia is the absence of tax stimuli, like VAT exemption. ACBA Leasing has drafted a package of amendments stipulating exemption of VAT for commercial leasing activities. This does not, however, mean that the budget will receive fewer taxes. On the contrary, this measure will encourage the companies engaged in commercial leasing activities to enlarge them, to earn more money and to pay more in profit and income taxes.
What is the lease payment for commercial property?
The lease payment for commercial property is competitive in the market. It is 10-14%, the repayment period is 10 years, prepayment is 10-30%, with no security or guarantee required.
How many transactions on commercial leasing has the company concluded since 2011?
The company has concluded several transactions worth 300-400 thsd USD so far. However, according to our forecasts, in 2012 the commercial leasing portfolio will grow at least twice, even if the new parliament of Armenia fails to adopt the amendments we initiated. I'd anticipate that commercial leasing has its logic continuation as a new product, namely leasing of commercial property, which is not built yet. It is a very interesting product for the investors. They will have an ideal opportunity to invest in property. We will return to this issue in 2 or 3 years when commercial leasing will be one of the popular products in the market and will occupy 1/3rd of our portfolio. Why? Because Armenia's real estate market is unstable. There is an excess of offer, so, the prices will continue to decline. I'd like to mention that further development of this product depends, first and foremost, on the legislative stimuli.
Would you tell us about the risk management system of your company? What is the potential lessee to do to lease equipment? What is the level of non-repayment in leasing deals?
Last year we managed not only to increase the volume of leasing transactions, but also to maintain the quality of the leasing portfolio. This demonstrates the effective risk management system of the company. Under this system, the potential customers undergo a certain procedure that lasts 3-7 banking days. The procedure includes assessment of the supplier, the financial state of the borrower, his assets, etc. We also apply to an independent organization for expert assessment of the financial state of the lessee. Strong and effective risk management is very important for any leasing company, as the leasing companies, including ACBA Leasing work with many suppliers according to the principle of the buyback agreement. Here it happens in rare cases. In these cases the lessee by all means concludes an agreement on insurance of the equipment.
How does your company solve the problem of funding?
ACBA Leasing is an independent credit organization and solves the funding problems itself. Sometimes we receive funds from our founder. Recently we have attracted 3 mln USD from the International Finance Corporation and 2 mln USD from the French company PlaNet Finance. We have also received 10 mln USD from our founder. So, over the 7 years of our existence in the market, we have never suffered a shortage of resources or difficulties with attraction of funds. The lease financing is in USD, EUR and AMD.
What would you say about the power saving technologies?
The company will lease power saving technologies, particularly, equipment for small water, wind and sun power plants and meat processing industry. I think power saving technologies will get quite a big share in the company's portfolio. The new product will be provided through 260 agents of ACBA Credit Agricole Bank, the company's central office and suppliers.
To what extent does leasing contribute to modernization of the national economy? In 2009 the share of leasing transactions made up 10-15% of the total fixed assets upgrade transactions. This figure has most likely changed, hasn't it?
Certainly, it has changed and now exceeds 30%. The reason is that our Government has changed its policy with respect to leasing. Probably, you know that besides the local leasing companies, there are also representations of foreign companies in Armenia. This means that the Government itself perfectly realizes the economic significance and the benefit of leasing.
Nevertheless, the problem of accelerated amortization of leasing property still remains unresolved. What is the reason of that if the state realizes the economic benefit of leasing?
The impossibility to use accelerated amortization leads to big losses. Very many entrepreneurs do not resort to leasing, as they have no opportunity for accelerated amortization of the leasing equipment. ACBA Leasing suggests changing the tax regulation of the leasing transactions, in particular, deferring the VAT taxation in case of importation of leasing equipment of strategic importance for the country and the business, as well as possible reflecting of the lease payments in the book records. The company also suggests abolishing VAT in case of leasing of commercial property.
What is the capacity of the leasing services market in Armenia?
According to our estimations, the leasing market capacity is about 30 bln AMD, of which only 7 bln AMD has been used. The potential lessee should realize the efficiency of leasing, its economic benefit and wide availability. As soon as our customers understand this, leasing will become one of the most demanded products in Armenia.
I'd like to note that we are constantly studying the needs of our customers and developing products with due regard for their financial opportunities. For instance, ACBA Leasing is currently developing a leasing product for small and medium-sized companies, with the amount of the relevant financing to range within 3mln-8mln AMD.
Thanks for the interview!
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