Market participant: Leasing development has great potential in Azerbaijan

Business Materials 16 May 2013 14:06 (UTC +04:00)

Azerbaijan, Baku, May 16 / Trend L. Abdullayeva /

Azerbaijani leasing companies pin high hopes for this year. According to the participants of the market, if they manage to overcome at least some problems that exist in this sector, the Azerbaijani leasing market can hope for significant progress.

The increased activity in the country's leasing market was observed in 2012 compared to 2011. This was associated with an increase in construction operations within the infrastructure projects being implemented in the country. The Joint Leasing Company which also felt these positive changes agrees.

"In 2012, the Joint Leasing Company signed 46 new contracts on financial leasing which helped expand the number of active contracts to 190," the company said.

The Joint Leasing Company has funded 530 projects worth 90 million manat since its establishment. Interest rates on contracts were increased from 10 to 12 per cent in 2012.
"One can predict a 10 per cent growth in the Azerbaijani leasing market in 2013 based on the results of 2012," the company said.

The main financial source of the company is its founder, the International Bank of Azerbaijan (IBA). "Despite this, we plan to raise funds from other sources of funding in 2013 and some action in this direction has already been taken," the company said.
Leasing company NIKOIL Deputy Director General Musa Turabov also believes that 2013 started fairly positively and there is a revival in the market.

"It mainly refers to the construction sector, stipulated by large scale infrastructure projects realised in the country," Turabov said.

He said that the Azerbaijani market demonstrates the market demand for various types of financing including leasing financing in the case of the economic growth. "At present, there is a large market potential. Unfortunately, the leasing sector feels the lack of investment resources and cannot meet the needs of the market."

The main reason for the lack of investment resources is that today it is difficult for leasing to compete with credit financing which is related to taxation especially VAT on leasing operations and the lack of legal regulation.

Leasing companies offer to clearly organise the system of VAT which stands at 18 per cent in order to create a working mechanism in this area. As is known, up till January 2008, goods imported under leasing contracts in Azerbaijan were not subject to VAT, but then this concession was cancelled. However, the mechanism of VAT collection in the leasing field was not systematised and as a result transaction costs of leasing services have increased.

In such circumstances, leasing companies lose their clear advantage in comparison with bank loans and the purchase of equipment for cash. Under current conditions, it is leasing which might become a necessary mechanism for companies including due to the lack of the required, additional collateral security.

Despite these difficulties, 2012 was generally positive for the NIKOIL leasing company. The company attracted financing to the sum of two million manat and financed new leasing projects. Since its establishment, the NIKOIL leasing company has funded projects to the sum of 12 million manat. The company, depending on a product, offers discount rates from 19 per cent per annum.

"The company is currently focused on retail leasing products. Work on attracting additional investment to finance the real economy is also being conducted," Turabov said.

2012 was also fruitful for the Ansar Leasing Company which improved its portfolio.

Currently the leasing portfolio of Ansar Leasing is $11.3 million and mainly formed by the assets of its sole founder, the Islamic Corporation for the Development of the Private Sector (ICD) which is a member of the Islamic Development Bank group. The company has 560 projects and works primarily with individuals. Ansar Leasing offers pool rates within an average of 18 per cent.

The company expects to increase its portfolio in 2013 by more than twice through attracting solvent customers.

The leasing market value in Azerbaijan varies within $200 million and taking into account the transactions carried out through the state leasing company Agroleasing, the portfolio reaches $270-280 million.

In international practice, the ratio of the leasing portfolio to GDP is 1.5-2 per cent. At present the potential of Azerbaijan's leasing market is about 0.8-1 billion manat. However, due to some difficulties and gaps in legislation the leasing market couldn't reach target figure

Azerbaijani leasing market is represented by 22 lessors, but only 11 companies and banks are actively offering leasing services today.