Azerbaijan, Baku, June 17/ corr Trend I.Khalilova /
State regulation can be a catalyst for the development of the Azerbaijani leasing market if it gains support as a control agency, said Jeyhun Nagiyev, Director General of the Azerbaijani leasing company Ansar Leasing, which was established by the Islamic Corporation for Private Sector Development (ICD, a member of the Islamic Development Bank group).
"An ideal control agency for the leasing market could be the Ministry of Economic Development, which may also be interested in regulating the market," Nagiyev believes.
The Central Bank of Azerbaijan regulates the country's banking sector. The Finances Ministry regulates the insurance sector.
According to leasing market participants, the absence of a control agency required that tax privileges, injected in 2009 to release income directed at capitalization from taxes, would only be applied to banks and insurers, although leasing companies are also under the parliament's economic jurisdiction.
"It would be better if the leasing sector was controlled by any state agency, because the supply of leasing companies lacks support; this is in spite of their participation in the country's financial sector," Nagiyev said. "For instance, over the past 10-15 years, the law on Banking Activities has undergone six revisions, while the law on Insurance Activities has been reviewed three or four times. Furthermore, a special legislation to regulate leasing companies' activities is lacking."
The country's leasing market is regulated based on the Civil and Tax Codes.
"In principle, there is not much need to adopting new legislation -- the most important for the market is state support," Nagiyev emphasized.
Major participants in the market believe that state control over this sector might produce some side effects, for instance examinations, but generally the imposition would contribute to market growth.
Although there is currently no serious growth in the leasing market, future growth is expected. The market contains 10 active participants and one state leasing company. Generally, the market has nearly 22 leasing companies and banks to direct leasing activities.
Among the major demands in leasing remains in the construction sector and fields related to purchasing transport conveyances, service equipment, photo and banking equipment.
"Unfortunately, the real sector, i.e. manufacturing, is far from ideal; it is less valued by leasing companies, in comparison to other sectors", Nagiyev said. "The real sector is associated with a high volume of non-payments and other problems."
The Azerbaijani leasing market fluctuates within $200 million. The portfolio reaches $270-280 million with the consideration of transactions realized through state leasing company Aqroleasing.
In world practice, the correlation between the leasing market and GDP is 1.5-2 percent, whereas the figure is 0.5 percent in Azerbaijan.
"Although the Azerbaijani leasing market potential constitutes around 0.8-1 billion manat, the leasing market cannot reach this figure due to complications in legislation", Nagiyev noted.
Among the major problem impeding the development of the country's leasing sector is the mutual settlement of VAT. So while purchasing a product, a leasing company pays VAT which cannot be paid by a leasing beneficiary because leasing companies are not obligated to pay this tax, depriving companies of the right to draw a bill on leasing. The resulting equipment costs are higher, making leasing deals expensive for a leasing beneficiary, with a minimum of 18 percent (current VAT rate in the country).
Furthermore, each company accrues problems related to registering transport conveyances, returning equipment and returning leasing. In the case of a default a leasing company returns the product liable to VAT when it sells thus canceling out the leasing aspect of the operation.
At the same time, Nagiyev believes that a major indicator for further development of the leasing market is high oil prices, which lead to economic growth and promotes realization of new investment projects. That will increase the demand for new equipment and finally result in the market's development.
Leasing company portfolios leaders are deals on cargo leasing for trucks (25.9 percent) and passenger (13.7 percent) transport, construction technique and equipment for producing construction materials (25 percent), medical equipment (8.4 percent) and property (7.2 percent).