Financial Leasing Supervision

1
Financial Leasing Supervision Radovan Jelašic
Governor of the National Bank of Serbia 26
January 2006
2
Legal 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.

3
Definition 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.

4
Financial leasing vs. bank 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 lessors tenure by a special procedure 33
  days), bankruptcy or liquidation of the lessee
  (right to separate recovery).

5
Number of financial lessors in Serbia
NBS operating license until 26 January
?uly 2005 Amendments and Supplements to the Law
on FL
??y Law on FL
2003.
2004.
2005.
2006.
?
2
10
1
1 2?

• 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

• 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

6
Achieved turnover of the existing financial
lessors
Balance sheet assets of the lessors in relation
to the balance sheet assets of banks
In million EUR
7
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
8
Typical 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.

9
Financial lessors sources of financing

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

210
179
10
Objectives 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).

11
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 lessees 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.

12
New secondary legislation (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.

13
Additional information

• Financial Leasing Supervision Department
• 23 Skadarska
• 11 000 Belgrade
• Phone [phone]
• Fax [phone]
• E-mail lizing_at_nbs.yu