“The piece of the pie is shrinking, the competition is not weakening”

The general director of Rosbank Leasing told Kommersant about the features of financing SME clients in the banking group, about the directions of development of the leasing market, about associated risks and ways to reduce them. Guram Kudryavtsev.

— What are the advantages of a banking group working with SMEs through leasing?

— Fiscal preferences, of course. More secure risk profile. In any case, leasing financing for a good asset is always more attractive than secured lending from a risk perspective. With collateral, the seizure procedure is more complicated. If a client goes bankrupt, everything related to the leased assets is not included in the bankruptcy estate. Therefore, all other things being equal, it is profitable for a banking group that provides both credit and leasing products to promote the latter financing option.

— Can we conclude that leasing allows banking groups to retain riskier, but still interesting clients?

– Yes, it is true. SME clients often face the fact that banks do not understand their risk profile; they are not always ready to provide financing, preferring transactional business. Leasing is just ready to understand risk profiles and work with them. Today, for many structures, leasing is becoming an anchor product from a lending point of view. Because it is the safest, and I’m not even talking about margins.

— What is the share of SMEs in your issuances at the end of 2023 and the forecast for 2024?

— We have long been committed to developing leasing products for small and medium-sized business clients, and our share is constantly growing. By the end of 2023, more than 30% of new businesses are SMEs. For comparison: in 2022 the share was at 15%, previously – 10%. One of the advantages of working in the segment is the greater predictability of business volumes, as well as the lack of dependence on large checks, which can be realized, but may, for a number of objective reasons, be postponed or not take place.

— Which companies do you classify as a segment?

— On average, we are talking about clients with revenues of up to 2 billion rubles. in year. Although, according to the terminology of the federal law, businesses with revenues of 2.5–3 billion rubles can also be classified as SMEs. In a broad sense, medium-sized businesses include all enterprises with revenues of less than 16 billion rubles.

— Why did the share of SMEs increase?

— Until July 2023, the Central Bank refinancing rate was 7.5%. Loose monetary policy has given a very significant impetus to the development of leasing. In fact, last year was the best in the entire history of modern leasing in the Russian Federation; it will be a benchmark for the industry. It is unlikely that similar volumes will be achieved in 2024. Unless the cycle of reducing the key rate of the Central Bank begins earlier than the second half of the year and is not more “dynamic” than the growth cycle of 2023. But so far the situation does not look like this: at the end of December the rate was increased by 100 basis points, it is unlikely that over the next three to four months it will decrease significantly.

In fact, in most countries of the world, leasing is mainly a tool for financing SMEs. Based on this, even if there is no certainty that the leasing market itself will grow, the share of SMEs is likely to increase. Partly because SMEs react more calmly to high rates.

– Why?

— Nowadays, large corporate clients most often do not have investment projects, and leasing is the financing of long-term investments that must be made here and now at any rate. When we communicated with clients at the beginning of the trend to increase the key rate of the Central Bank, they said bluntly: “At such interest rates, our project does not pay off, perhaps we could refinance in the future when the rate falls, but now we prefer to wait.” And the waiting period can be quite long.

The situation in SMEs is somewhat different: assets are acquired under signed contracts and projects where there are strict deadlines for completing tasks. There is no way to freeze the project until better times. And if the minimum business logic is met, that is, the proceeds from the project allow it to cover the monthly leasing payment, the assets are financed.

— What is the average term of a leasing contract with SMEs?

— Standard terms are 36–60 months. But now the market is moving towards extension. In general, we see a liberalization of approaches to assessing SME clients. It may have certain nuances from a risk policy point of view, but this is a market trend that cannot be ignored. We are talking about extending the leasing terms and reducing the amount of the initial advance. Three to five years ago, it was not very realistic to imagine that an individual entrepreneur or a small enterprise could systematically receive zero advances in a leasing transaction; today it is almost a standard.

— How are risks mitigated?

— The advantage of leasing over a loan is the ownership of the financed asset. We always proceed from the fact that it is possible to withdraw an asset and sell it if the client has difficulties servicing the debt. Inflation, to some extent, also serves as additional protection. There are situations when after two years you realize that in fact you can sell the asset for virtually the same price for which you bought it, because inflation was 15–20%.

In addition, a more aggressive risk profile is reflected in the pricing of the leasing transaction. Obviously, leasing for SMEs has a higher margin than for large clients, which is why it arouses such interest among most market participants. It is unlikely that margin levels will remain high in the future: business volumes will most likely decrease this year, and the level of price competition will be very significant.

— Who do you mostly work with?

— Mainly in three or four areas. First of all, transport – taxi companies, logisticians, regional carriers. Next comes construction and trade. We mainly focus on wheeled vehicles; if we were involved in equipment, then perhaps the client profile would be different. But we have a very cautious attitude towards equipment in the context of SMEs.

– Why?

— I repeat that one of the advantages of leasing is the right of ownership and the ability to withdraw the asset and resell it in case of difficulties. But problems almost always arise with equipment and its removal. During the 2007–2008 crisis, there were many cases when resolving an issue with equipment (transportation, dismantling of an asset) generated significant losses. In addition, if the equipment was made for a specific client, its demand on the secondary market is close to zero.

There are classes of equipment that we have financed for SMEs with some comfort due to the presence of a tangible secondary market. We are talking, for example, about printing, where we had cases of selling assets to third parties outside the Russian Federation. When you realize that your remarketing market is the whole world, this creates obvious additional comfort. There are promising areas that, for a number of reasons, have not yet reached a significant level, for example, medical technology. Ultrasound and CT machines are highly sought-after assets with a clear secondary market.

To be effective in the equipment financing segment for SMEs, you need to do significant homework: understand the specifics of the asset, the competitive environment, the main protagonists both on the side of suppliers and on the side of key customers. Financing assets that you don’t understand well can lead to disastrous results.

— What do you see as the main trends in the SME leasing segment for 2024?

— The key trend now is partnership programs with brands. Some replication of vendor programs. Primarily in the construction assets segment. In addition, some large transport companies are now puzzled by the history of their own marketplaces. A large transport provider that offers, through a leasing partner, to provide an individual entrepreneur or small enterprise with an asset and provide it with orders.

We are working on additional services. This year will be quite difficult in terms of margins. The piece of the pie is getting smaller, but the competition is not weakening. One way to maintain margins is to diversify, develop and sell additional services.

Interviewed by Polina Trifonova