Lengthening leasing contracts increases risks for lessors
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A number of leasing companies note a trend towards lengthening contracts in both the retail and corporate segments. This is due to rising prices for leased items and high rates on the market, which forces companies to reduce their debt burden to retain clients. Increasing contract terms is also a tool for competition. However, the risks of the lessors themselves are growing, since the leased asset is losing profitability every year. Therefore, given the expected easing of the Central Bank’s policy, market participants do not expect the trend to be long-term.
According to Europlan’s IFRS reporting, in 2023 the terms of leasing transactions have increased significantly. Thus, the share of transactions for terms of two years or more increased by an overall 2.9 percentage points (pp), from two to three years – by 0.7 pp, from three to four years – by 1 pp. p. An increase of 1.5 times was shown by the share of transactions for a period of four to five years – up to 3.5% of their total number in the company. This happened due to a reduction in the share of transactions for a period of up to one year – from 44% to 41.1%. Europlan works only with retail segments, mainly with different types of wheeled vehicles.
The trend is also confirmed by companies that work not only with retail. On average across the portfolio, the length of leasing contracts in 2023 increased by approximately 10%, says Rustem Mukhamedov, CEO of Region Leasing.
According to Anatoly Perfilyev, junior director for bank ratings at the Expert RA agency, the terms of contracts have increased from an average of 2.9 to 3.1 years. The greatest extension occurred in the corporate segments (from 12 to 14 years), which differ from retail in their longer service life and high cost of leased items.
The extension of contracts “is associated with increased prices for leased items and a stricter monetary policy, which directly affects the increase in rates and the rise in leasing prices,” explains Anton Musatov, General Director of VTB Leasing.
According to him, leasing companies began to offer entrepreneurs extended terms of leasing agreements and minimal advances for a comfortable entry into the transaction, as well as the possibility of reducing leasing payments.
Previously, the average term varied in the range of 40–44 months, now it is 52–60 months, in 2021 the average advance amount in car leasing was 18–20%, last year it was fixed at 7–8%, VTB adds Leasing”. As Europlan notes, such conditions reduce the risk of delay, since the monthly financial burden on the lessee is reduced.
At the same time, according to the general director of Fleet Autoleasing, Alexey Smirnov, for the lessor himself, “the risks increase, since with an increase in the leasing period, the ratio of the market and book value of the leased asset becomes not in favor of the lessor.”
According to Dmitry Kudryavtsev, Director of Strategy at Alfa-Leasing Group of Companies, “the duration of the contract depends not only on market demand, but also on the risk policy of a particular leasing company.” Therefore, some companies, on the contrary, are talking about reducing leasing terms.
In particular, Alfa Leasing has noted this trend since August 2023 (that is, since the active increase in the Central Bank key rate).
Variability of leasing terms is an element of competition in the market. “This means that lessors will continue to have incentives to soften conditions for clients,” believes Suren Asaturov, director of the ACRA group of financial institution ratings.
However, “taking into account some stabilization of the economic situation and a possible easing of the regulator’s monetary policy in 2024,” notes Anatoly Perfilyev, lengthening the terms of leasing agreements does not look like a long-term trend.
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