Lessors are ready to dump on rates in an attempt to increase their share in the segment of small and medium-sized businesses

Lessors are ready to dump on rates in an attempt to increase their share in the segment of small and medium-sized businesses (SMEs). A third of market participants consider dumping to be the most effective method of competition in the current market. Leasing companies (LCs) close to state or financial groups have an advantage in such a situation. The rest will have to strengthen in narrow segments and regions.

Last year, the size of the average advance in the industry decreased to 16.7% of the total cost of a leasing agreement, while earlier the figure was 21%, Expert RA analysts reported at the XII Congress of the Russian Leasing Industry last Friday. Such dynamics is observed against the background of the growth of risk appetite of the LC. According to the agency, 83% of leasing market participants consider the market to be highly competitive, 33% are sure that dumping will be the main method of competition in 2023.

As Alexander Saraev, Deputy General Director for Rating Activities of Expert RA, explained, dumping will be especially typical for leasing companies close to the state or included in financial groups, that is, having cheaper financing. On average, they will be able to offer a discount of 2 percentage points (p.p.) to those rates that market LCs can afford, he believes. This situation is associated with the forced reversal of the largest companies in the industry to work with small and medium-sized businesses against the backdrop of stagnation in the corporate segment. “The largest companies are now striving to increase their market share, while business marginality is fading into the background,” he explains.

According to Mikhail Gonopolsky, Managing Director of Insight Investment Group, average rates in the leasing market are now at the level of 15-17% in the segment of transport and special equipment for high-quality SME clients. Market companies, at best, can attract funding at these rates, it is economically impossible to offer a product to customers on such terms, he concludes. “Market medium-sized companies need to learn to work in narrow segments, in the regions,” says Sergey Savinov, general director of Interleasing. “If a company wants to give out expensive, it must take risks.”

As a result, this year the share of the top 10 companies in the volume of new business will continue to grow, Alexander Saraev expects. At the end of 2022, the share of the top 10 companies in the volume of new business was 75% against 63% a year earlier. The leasing market may begin a new redistribution, no longer associated with the departure of foreign players, the expert believes. Against this background, middle players will unite among themselves within the same niche, some interlocutors of Kommersant admit in the market.

Especially clearly the problem of dumping may manifest itself in the market next year, the interlocutor of Kommersant agrees in one of the large LCs. From 2024, all lessors will be required to submit data to credit bureaus. Then information about lessees and their credit quality will become absolutely transparent for the entire market, and monopolists will be able to choose the best customers.

Another consequence of the reversal to SMEs, market participants call the increase in fraud. “Limits approved by companies are growing, all procedures are becoming faster and easier. Clients need a combination of favorable conditions and excellent service, both during the transaction and in the future,” says Vyacheslav Spirov, General Director of Sberbank Leasing.

This gives additional opportunities to scammers, warns Mr. Spirov. Companies are increasingly faced with situations where the same leased asset can be purchased by several LCs. Probably, increasing the volume of data exchange between industry participants could reduce such risks, he says. “It is difficult to combine the retail approach and the risks that equipment leasing implies for the company,” says Veronika Novikova, Chairman of the Board of Alfa Leasing. “It’s clear how to find, seize, store and sell a car. It can be beaconed,” she explains. “Beaconing equipment is more difficult, sometimes impossible. It must be properly disconnected and dismantled, properly transported and stored.” And all this requires additional resources from the company and creates additional vulnerabilities, Ms. Novikova concludes.

Polina Trifonova