Market participant: Leasing development has great potential in Azerbaijan
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.
Euro is reliable
Despite the negative dynamics of the GDP in the euro area in the first quarter of 2013, as well as encouraging situation in the U.S. stock markets, for the first time in the past several years, analysts gained some confidence in the stabilisation of the exchange rate of the single European currency. However, confidence in the Eurozone economy fell more than expected, but these positive expectations point to economic growth in the euro zone in the near future. The European Central Bank also predicted a slow growth of the euro zone economy in the second half of 2013.
Optimistic forecasts are also stipulated by a chain of positive news from the Eurozone itself. First, the most important development was the two-degree growth rating for Greece assigned by Fitch Ratings agency due to the elimination of the current transactions account deficit. Secondly, another weak link of the Eurozone, Spain, successfully sold government bonds with a life of six to 12 months at an auction held a couple of days ago which gained investors interest.
Partial resolution of the financial problems of these two countries whose negative news or a long time has been pulling down the single currency of the European Union is quite important. The financial assistance allocated to Cyprus in order to stabilise the banking sector removed some tension on this front too. Against this backdrop, the euro is not such a problematic currency anymore and the demand for it increases.
According to a study held by the Pew Research Centre, although the indicator reflecting the popularity degree of the EU fell down by 15 percentage points during the last year from 60 to 45 per cent, the euro remains a popular currency enjoying confidence of more than 60 per cent of Europeans.
The degree of support for the euro also grows in countries such as Italy and Spain. Moreover, the euro has gained the confidence not only of Europeans. As a young global currency it entered into competition with the US dollar conquering back some of its position and succeeded in resisting the harsh conditions of the global financial crisis. After all this, the struggle with the consequences of the crisis for the euro should not be too difficult, although it sounds easier than it is in fact.
Almost all currencies lost ground compared to the U.S. dollar since last Thursday. During this period, the U.S. stock market managed to repeatedly renew its historical maximums. While expecting the U.S. Federal Reserve representatives' statements regarding reductions in the economy stimulation volume at the end of this or early next week, market participants were forced to buy into the American market, while fearing they'd lose a profit. The growth of the U.S main stock indexes strengthened their currency.
The April data on inflation in the Eurozone has pointed out that inflation has fallen to the lowest indices for the last three years and is significantly below the target level of the European Central Bank. This may lead the European Central Bank to take action to revive the economy. This will boost growth of the euro rate in the global stock markets.
This means the processes of economic events from two parts of the world will strain the investors, participants of currency exchanges and analysts causing the latter to make predictions only for the medium term prospect and forcing world countries to keep their strategic reserves in the two reserve currencies, by changing only the proportions depending on a prevailing role of currencies in the markets.
The currency structure of Azerbaijan's reserves is determined based on the currency structure of foreign trade, external debt and the currency of the monetary policy in the country. The U.S. dollar plays a key role in all components.
The outcome means that Azerbaijani total strategic currency reserves as of April 1, 2013 amounted to $46.6 billion, of which $12.3 billion falls to the currency reserves of the Central Bank and $34.3 billion to the State Oil Fund's funds. If the assets of the Azerbaijani Central Bank in foreign currencies are concentrated in the U.S. dollar and the euro to 60 and 35 per cent respectively, the State Oil Fund's portfolio makes up 51.32 per cent in dollars and 38.81 per cent in euros.
The balance of Azerbaijani foreign exchange reserves has allowed the country to avoid losses even in the crisis period.