The Baltic Course

As leasing chases credit

By Olga Pavuk, Boris Sebyakin,
Paulius Tamulenis (Lietuvos Rytas),
Hannes Tamme (Radio Ku-Ku)

More and more families and companies in the Baltic states seem to prefer living in debt - or more specifically, taking use of leasing services and mortgage loans. The leaders of the Baltic leasing market have grown to such an extent that they compare their financial portfolios not with their leasing competitors, but with those of the region's banks. For a while now, financial portfolios of the larger leasing companies have already surpassed the level of loans granted by small and medium-sized banks, and in some cases even those granted by the larger banks

Tripping up Latvian style

Early last year, the Latvian Ministry of Finance seemed to assert every effort to slow down the development of its leasing market. Amendments to the Law on value added tax (VAT), taking effect on January 1, 2001, threatened to stomp out the success achieved from having initially introduced leasing loans. If VAT was earlier not imposed on the interest of leasing loans, now, according to the amendments, besides the payment amounts agreed upon with the leaseholder, clients would also have to pay VAT every month.

The most effected by this change were small and medium-sized companies, which were forced to revise their schedules for leasing payments in a hurry. Besides, as often occurs, the officials managed to approve these amendments to include those entities having signed leasing deals before January 1, 2001, who also now had to pay the VAT on all payments. In result, leasing companies were immediately swamped with phone calls from unhappy clients.

Nevertheless, leasing companies and the business press, rising in protection of their clients, managed to convince officials that they may not apply these new rules to already concluded business deals. The obvious mistake of the lawmakers was corrected in a few months time. Overpayments made by clients during this period were transferred to future accounts and leasing continued its ongoing development.

Until recently, the Leaseholders' Association of Latvia was represented by both banks and leasing companies. Last year, four leasing companies formed the Latvian Association of Leaseholders (LAL), and the former organization ended its existence. According to the president of the Latvian Association of Commercial Banks, Teodors Tverijons, a leasing committee, including also banks dealing with leasing services, will soon restart operations. Inserviss Group and RD Lizinga Grupa, specializing in consumer leasing, remain outside the leasing associations.

"Our company, holding 61percent of the portfolio in the Latvian Association of Leaseholders, has key position," said the Director of Hansa Lizings, Aldis Birkmanis, recently still the chairman of the association. Unilizings, Nordea Finance Latvia and Sampo Lizings are also in the association; Vereins Leasing Riga is getting ready to join. If in early 2001, the leasing portfolio of LAL constituted 118.8 million lats, then a year later it added to 178.4 million lats.

The largest player in the Latvian leasing market is unmistakably Hansa Lizings with an annual portfolio of 108.3 million lats (up 38 percent in a year), followed by Parex Banka with 72 million lats (growth of 15 percent) and Parex Lizings with 2 million lats. According to the Vice-president of Parex Banka, Liga Purina, the largest part of leasing services at the bank is connected with people buying motor vehicles. In turn, real-estate is more often sold by giving loans. "Crediting creates less expenses, there is no need to draw up documents concerning the object to be credited at the bank," explained Purina. At the same time, banks are not yet ready for crediting automobiles. According to Purina, one of the major trends in the market is a fall in interest rates both for contracts in euros and lats. Consumer leasing constitutes 50 percent of the services provided by Parex Lizings.

According to estimates made by Purina, the total leasing portfolio in Latvia in 2001 was about 300 million lats.

According to the data of LAL, the largest number of last year's leasing contracts were concluded on terms from 1 to 3 years (32.4 percent) and from 3 to 5 years (32 percent). The share of contracts with terms of up to one year was 21.6 percent.  Birkmanis pointed out that "when analyzing the situation, it is essential to take into account the fact that the conclusion of a contract for a small sum of money made also for a short maturity period of approximately one year explains the small interest gained by such sprinter contracts."

Most frequently the objects for leasing contracts are cars - 30.9 percent of all assets, 80 percent of which are new automobiles. Industrial equipment is in second place on 21.9 percent. Commercial transport is the third among leaders on 17.7 percent. This structure of leasing portfolios also defines the abundance of contracts with terms ranging between 1 and 5 years. 14 percent of all contracts are concluded on long-term basis, and are basically connected to real-estate (16.3 percent of total assets). "We do not anticipate growth in the number of leasing contracts in the sphere of real-estate for the nearest future, since as of last year, the volume of mortgage crediting has rapidly increased," forecasted Birkmanis.

Nevertheless, Hansa Lizings pays great attention to effective leasing. For example, those who have cut deals on the lease of new cars, receive 500 additional points on a Shell Plus card. Moreover, access to a hotline is granted - meaning that having dialed a special number at any time, any questions connected with motor transport can be given. Usually the hotline is used in order to receive assistance on the road.

Despite the obvious difficulties, the association has ideas on how to promote the more active use of its leasing services. The recently elected president of LAL, Janis Bruks, declared his intention of addressing the Ministry of Finance with an offer concerning the development of vehicle leasing. According to the head of the association, the appeal for this kind of service will increase significantly in future, provided that the size of surtax is reduced for a sum equal to the interest of payments on leasing for the person actually buying the car on lease. According to the opinion of leaseholders, the same privileges should be granted also to those who purchase homes on lease. It is pointed out that mortgage crediting in our neighbor country Estonia has flourished, mainly with the help of granting such privileges.

It's quite notable that in the previous year, private persons or entities made up 26.9 percent of the clients for LAL members. Bruks thinks that along with improvements in living standards, the share of private persons and families using leasing services will grow. Nevertheless, currently only 5 percent of the Latvian population actually uses leasing services. Among the legal entities, the most active are companies dealing with trade (19.6 percent of LAL clients), industrial companies (18.2 percent) and companies in the transport and communications branches (18 percent).

Panic in Lithuania

Leasing companies in Lithuania, having first grown on the account of large clients, are now starting to turn to the small clients, which have not only started to buy more cars, but also to spend their money on vacations abroad with some even taking plastic surgery, paying the bill in later days on lease agreements.

Leasing companies are eager to fill the available niches in the market in order to pep up growth-rate indicators from the previous year. Specialists are calling the year 2002 a year of a breakthrough for consumer leasing. Moreover, a growing concentration of leasing services is also promising a decrease in interest rates this year. The market leader, Hansa Lizingas, even expects the margin on services may decrease down to 1 percent.

The growth of financial portfolios for leasing companies saw unexpected speed last year. The leasing portfolios of the main players increased: Hansa Lizingas up by 64.7 percent and VB Lizingas up by 54 percent.

The main players of the leasing market finished off last year with different results. VB Lizingas was forced to postpone bad projects and, according to preliminary calculations, its losses constituted 1.3 million litas. Nevertheless, head of the company, Audrius Ziugzda, is satisfied with the results. As he said, the company grew faster than the market itself, and a leap of the portfolio predetermined a rise in the whole economy of Lithuania.

The operations of Hansa Lizingas were profitable last year; nevertheless, the company is not reporting its profit indicators. According to the head of Hansa Lizingas, Gedrius Dusiavicus, the year was very good and could hardly have been better.

Small leasing companies are successfully occupying their own market niches and increasing portfolios. Last year the value of Lietuvos Zemos Ukio Banko Lizingas financed projects almost doubled from 20.2 million litas to 43.5 million litas.

Small leasing companies pressed by the larger Hansa Lizingas and VB Lizingas found their gold mine last year, a subject of pride for their leaders. The brightest star in the sky last year was Snoro Lizingas, which in 2001 increased its portfolio almost six times, continuing its operations in consumer leasing. The small consumer market was the one to boost the Snoro Lizingas portfolio: if in the beginning of the last year, the value of the portfolio was only 7.4 million litas, now it has grown to 42.7 million litas. The financing of small purchases constituted 95 percent of the company's portfolio. "Besides the fact that the service provision area has widened, there has been an increase in the purchasing power of the population," says the Managing Director of Snoro Lizingas, Zorzas Sarafanovicus.

Last year, Latvia's Lateko Banka launched a new affiliate in Lithuania, LATEKO Lizingas, placing a bid on the specific market. "Profit in leasing retail and trade is a big one, and we are aiming at it," acknowledges the head of Sampo Banko Lizingas, Gintaras Sereiva.

Leasing companies are also considered as indicators of an economy's condition, as they are the first ones to directly adjust to changes in market demand. Changes in the structure of leasing portfolios last year also show features of structural growth in Lithuania's economy. According to Dusiavicius, increased activity of small entrepreneurs can be felt lately. "Currently the orders from large enterprises dominate. Many orders of machinery purchase for small and medium-sized companies have also appeared. They are replacing existing equipment with new ones, and there is a particular demand for construction machinery and equipment," says Dusiavicius.

Because of the huge concentration in the market, leasing services acquires a new form and service quality.

VB Lizingas started to render its services with the help of direct debit, that is, the automatic deduction from the bank's client accounts. Hansa Lizingas has introduced a system of service provision called Partner - clients make leasing contracts via the Internet directly from the car showrooms.

Other new leasing services have also appeared on the market. Last year, Hansa Lizingas started to lease equipment for offices. LATEKO Lizingas unexpectedly offered its clients to pay for facial plastic surgery through installments. In Lithuania, it has become a habit for many to pay for their tourist passes in a similar way.

According to Dusiavicius, there is still enough free space in the Lithuanian financial services market. The level of crediting and the possible potential to live on tick testifies this fact. The domestic commercial debt of Lithuania constitutes 10 percent of the GNP, while in neighboring Latvia, 30 percent of the borrowed money is spent on purchases; in Estonia, the figure is 40 percent, and in EU countries, the domestic debt in some cases amounts to 100 percent of the GNP.

Dusiavicius also pointed out that new sources of income for the leasing companies has opened the boom for housing construction. The more banks finance the crediting of housing, the more new apartment houses are built and the more clients buy homes and new household appliances on lease. Along with this, Ziugzda also acknowledges that the popularity of rent leasing should grow this year as well. According to him, this service is very popular in the West.

Estonia starts thinking European

The volume of Estonia's leasing market in 2001 made up 13.6 billion kroons.

Two kinds of leasing are especially popular among private persons in Estonia: cars and housing. Recently, there is also much greater interest in receiving credit for sums equal to salaries. The EGO credit card, offered by Hansa Liising Eesti is one reason for this. The owner of the card can purchase most anything needed on credit, and the department of leasing removes the according split up sum from the client's account every month, as well as interest according to contract. In eighteen month's time, over 30,000 EGO credit cards have been distributed.

"To compare the situation in Estonia to that in Europe, our only complaint could be that the volume of office equipment leasing could grow faster," considers the Director of the Estonian Association of Leaseholders, Reet Haal. She pointed out that in the first years of leasing services, a significant part of the leasing portfolio was made up by vehicle leasing. Now this share is decreasing from year to year.

"Estonia is starting to think European - meaning that an Estonian no longer needs to be considered as the full owner of a house, car and other things necessary for life; but more importantly is the convenience of acquiring and using these things," emphasized Haal. Providing the assistance for buying very large and expensive objects - for example, turbines for a power station - seems like excessive cargo for most Estonian banks; for the local turnover, it takes too much investments and risk. In such cases, large western companies help by giving goods on lease themselves.

Over the last year, two thirds of the leasing portfolio in Estonia was given to companies and inhabitants of northern Estonia. Two years ago, even more than 70 percent of the country's leasing portfolio was given to the region. One may thus draw a conclusion on the gradual alignment of the situation regarding the rendering of this particular service in the country's regions. "The volume of real-estate leasing is constantly growing, and now already constitutes one quarter of the whole leasing portfolio," noted Haal. Demand for the purchase of cars on lease is also steadily increasing. "If we compare leasing with credit, the difference is in the fact that it takes a long time arranging to get credit, but a leasing contract can be concluded in a couple of hours," said the Chairman of the Board at JSC Regamic, Ants Astover.

Car traders willingly sell cars on leasing conditions; now the first installment may only be 10 percent of the car's total price. Usually 2 to 5 years is considered the period for leasing a second-hand car, and 2 to 3 years for new cars. Car traders hope that in a few years 60 to 80 percent of the leasing contracts for purchasing new cars will be concluded directly from car trader showrooms. Nevertheless, car dealers are already actively introducing modern technologies and they usually communicate with leaseholders via the Internet.

The Association of Leaseholders of Estonia (Eesti Liisinguuhingute Liit) is represented by five companies, which control 99 percent of the whole leasing market in Estonia. These are joint-stock companies Hansa Liising Eesti, Sampo Liising, Nordea Finance Estonia, Uhisliisingu and company Siemens Finantseeringute. The association was established in September 28, 1995 and registered in February 1, 1996.

"Recently, leaseholders have become very active in the real-estate market, offering clients a set of other services besides leasing, starting from the designing of a house and ending with a choice of constructors on competitive basis, ensuring security of the construction site etc.," said the head of the real-estate department at JSC Hansa Liising Eesti, Jaan Liitmae. He added that leaseholders have their own insurance companies. Those in turn assist in maintaining continuous monitoring of the real-estate purchased on lease. Leaseholders carefully control companies and private persons to whom they render the services.

For example, two years ago a transport company tried to steal about 20 vehicles from Hansa Liising Eesti. Litigation of this attempt is not yet over to this day.


Portfolios of Latvian leaseholders, mln LVL, 2001.



Hanza Lizings


Parex Banka




Nordea Finance Latvia


Lateko Lizings


Sampo Lizings


Baltijas Tranzitu Banka


Latvijas Krajbanka


Parex Lizings


Source: information from leaseholders and LAL


Portfolios of Lithuanian leaseholders in 2001, mln LTL



Hanza Lizingas


Snoro Lizingas


VB Lizingas


Lietuvos Zemos Ukio Banko Lizingas


Sampo Banko Lizingas


Parex Lizingas


Source: information from leaseholders


Portfolios of Estonia's leaseholders in 2000, bn ลลส



Hansa Liising Eesti




Nordea Finance Eesti


Sampo Liising


Siemens Finantseeringud


Source: Estonian Association of Leaseholders


Structure of Estonia's leasing portfolio, %




























Commercial transport









Vessels, airplanes, railway transport, train engines and carriages









Machinery and tools



























* - preliminary data
Source: Estonian Association of Leaseholders

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