Galina Myer: the leasing market will decline by 20%

Galina Myer: the leasing market will decline by 20%
Tags: Photo source:

LLC “Reiffeisen-Leasing” Managing Director Galina Myer answers questions from the editor-in-chief. 

— How would you characterize the situation in the Russian leasing market? What are the main / most noticeable tendencies? 
— The most noticeable tendency in the market is a decrease in the activities of potential lessees. There is a group of clients who are suffering great difficulties. Their stock of orders has decreased, their investment plans have been reduced. There are clients with a lot of orders but they are trying to use old equipment because the rental cost has significantly increased through the growth of interest rates and purchasing prices for the equipment. Another aggravating factor is the change in financing conditions for leasing companies. For some companies, this change only involves financial resources. Many leasing companies have lost the opportunity to prolong old credit lines and to open new ones. Following these developments, lessors have become stricter in the evaluation of potential lessee’s credit-worthiness. 

—How has the crisis and the volatile rouble/euro course influenced the leasing market? What reduction do you predict for 2015?
— Of course, both the crisis and the volatility have influenced the leasing market. For example, our company has reduced currency agreements conclusions. The credit burden has greatly increased for lessees, as they have exchange commitments. Of course, foreign currency rates of interest were significantly lower than rouble rates, but this is of little comfort. The rouble interest rate in leasing agreements has, on average, increased twice.
No wonder, then, that some lessors had to raise the rate three-fold. It is not only connected with the Central Bank key interest rate but with the restriction of resources themselves and with the creditors’ wish to secure themselves against the risks of bad debts growing. On the other hand, the lessors’ stocks of orders with currency agreements has survived positive re-evaluation and has shown growth in rouble-equivalent terms.
It is difficult to forecast market development in such unstable times. And I share the opinion of the industry experts and predict about 20% market decline in 2015.

— We think that for your profile companies, the current unfavorable economic situation has both pros and cons. Investment volumes are reducing and planned purchasing is being postponed and there is less interest in rent and leasing schemes. How are you going to use this to your advantage?
— We have developed a simplified procedure of approving limits up to 1 mln euro in “Simply leasing”. To our mind, this will help the most vulnerable segment - small and medium-sized businesses – to continue developing in these hard economic conditions. We don’t strive to realize large-sized long-term transactions – it is important for us to help good businesses survive by equipping plants with new equipment and replenishing their inventory with new vehicles and special-purpose machines. That’s why we have reduced to a minimum the documents necessary for transition approval and have optimized the decision making procedure (up to 7 days). It is possible to do it even without advance payment.

— How can leasing help a construction company survive hard times? What leasing schemes and products can help save money without losing quality and jepoardising terms of work completion?
— I’d advise a construction company to estimate the possibility of projects and contracts realization, to carefully audit the state of the existing vehicles and machines, to consider the prime contractor’s requirements and the partners’ equipment. Then it will be necessary to calculate the current credit exposure, cash or fund flows, and to evaluate if the company will be able to increase leasing payments to buy additional equipment.
If a company comes to us then we help make calculations, forecast flow of funds and consult the client about cheaper payment schemes. Currently we are inviting clients to take part in an advance payment project. It will both decrease the lessee’s rate burden and also serve as additional transaction security.
Also, we can pawn the client’s equipment, to reinforce support or when the client’s money is insufficient. Of course it’s rare and it is put in practice as a one-off. Such things may become more common. The larger the advance sum and the shorter the time of redemption, the sooner leasing will be approved.
We work with all the producers and together we develop an optimal balance between the leasing cost and the financial arrangements. It is important for a lessee to read the agreement terms carefully. He should avoid agreements with a probable interest rate rise in the terms of agreement due to a rise in cost of the borrowed resources. Choose a lessor who will fix the interest rate from the first to the last payment.

— Despite the general leasing investments reduction, in some segments required by small and medium-sized business (e.g. motor vehicles and special-purpose machines) the situation is not so bad and even a slight rise is looking possible. Is this right?
— I think that such a statement is illusory. Growth decreases and reduction will take place in all segments. We can speak only of a segment’s part-increase, for example motor vehicles. But the reason for that is not sales growth, but a significant fall in other sectors. The construction equipment sector has a great advantage over that of industrial equipment. There is a mature secondary market for special-purpose machines and it allows for a higher evaluation of the equipment mortgage value, which itself serves as transaction security.

— How relevant to the situation now are the so-called packaged solutions, providing for quick and simple transactions — that is, express-leasing on the basis of standard conditions? Does this practice suit constructors?
— Express-products are absolutely necessary. They usually allow people to finance the leasing of realizable objects. If a lessor is sure he’ll easily return and sell a withdrawn leasing object without losses, the transaction can be done in a few days. A lessee gets their answer in one or two days. If the answer is negative, the lessee can approach another company. Often the clients save time and submit documents to some financial organizations. The lessors secure themselves 50% of the equipment cost in advance. In such conditions, the cost increase tends towards zero. Of course, there are a lot of clients who will accept such a proposal.
Our product, “Simply leasing”, works for all leasing objects as we are an all-business leasing company. First of all, we consider the company’s financial responsibility and its signed contracts. We have simplified the procedure for small volumes and now we can lease one equipment unit on beneficial terms.

— The editor’s traditional question: being so busy, do you have leisure time? If so, how do you spend it, what are you fond of?
— My elder daughter is six and my younger daughter is only a year and a half. So all my free time is spent with my family. Before my daughters were born I often used to visit Moscow theatres, travel a lot, do Yoga and alpine skiing. Now I generally attend theater performances for ?hildren and try to teach my elder daughter sports and culture.

Andrei Chernakov