Turkish Leasing Market: Latest Developments and Prospects Bülent Tasar Chairman Turkish Leasing Association (FIDER) Managing Director - Siemens Finansal Kiralama A.S. - Turkey Turkish Leasing Market: Latest Developments and Prospects 2-3 Istanbul-Turkey
SIEMENS FINANCIAL SERVICES AT A GLANCE Siemens Financial Services (SFS): A Siemens Group Nearly 1,900 employees International network of affiliates coordinated by Siemens Financial Services GmbH, Munich SFS a provider of financial solutions - Combination of international financial expertise and comprehensive technology and industrial know-how Total assets Pretax profit Employees worldwide - Financial solutions uniquely targeted to the requirements of its customers FY 2008 FY 2007 FY 2006 FY 2005 11,328 8,912 10,522 10,148 286 329 307 319 1,933 1,783 1,764 1,672 SFS is a niche player in target markets: sales and investment financing, treasury services, fund management, insurance solutions 2
MAIN ECONOMICAL INDICATORS TURKEY MAIN ECONOMIC INDICATORS 2001 2002 2003 2004 2005 2006 2007 2008 GNP (Million US$) 145,700 180,900 239,200 299,500 361,400 399,673 658,700 748,000 GNP Growth % -9,5 7,9 5,9 9,9 7,6 6,0 4,5 1,5 Per Capita GNP $ 2,123 2,598 3,383 4,172 5,008 5,477 9,333 10,733 Population (Million) 68,6 69,7 70,9 71,5 72,0 73,4 70,5 71,5 Inflation Rate (CPI) % 54,4 45,0 25,3 10,6 8,2 9,7 8,4 10,1 Inflation Rate (WPI) % 61,6 50,1 25,6 11,1 5,9 11,6 5,9 8,1 Exports (Million US$) 31,334 36,059 47,253 63,167 73,476 85,478 107,200 132,003 Imports (Million US$) 41,399 51,553 69,340 97.540 116,774 138,290 170,100 201,823 Source: Turkish Statistical Institute (*) Central Bank of the Republic of Turkey 3
LEASING STATISTICS Distribution of Domestic Leasing according to asset type New Equipment cost in USD million Equipment 2001 2002 2003 2004 2005 2006 2007 2008 Vehicles Air transportation vehicles Marine vehicles Construction Machinery Manufacturing machinery and equipment Medical equipment Textile machinery Tourism equipment Electronic and optical equipment Printing equipment Office equipment and computers Real estate Others 72,6 1,4 1,3 72,1 156,8 28,8 87,8 16 29,7 24,6 126,4 66,6 46,9 195,4 6 17 99,6 278,5 42,7 310,8 36 50,3 38,3 137,8 68,7 46,1 334,5 0 6,8 201,7 547,9 100,3 413,3 42,9 75,9 56,5 185,3 144,1 55,6 420,1 5,2 5,7 446 781,6 122,1 371,2 42,4 144,4 104,9 209,1 196,9 70,7 524,9 25,8 7 986 1175 197,1 351,9 59,6 150,4 134,9 263 343,9 42,6 641,1 11,3 24,4 1363,8 1416 245,9 355 96,4 191,1 152,2 317 384,6 71,2 866,1 96,8 138,4 1931,1 1921,9 368,6 651,3 195,7 298,9 230,1 465,1 919,5 119,8 485,8 98,5 113,8 1081,3 1433,8 367,9 136,5 180,8 146,1 289,9 584,1 80,2 24,6 Total 731 1327,2 2164,8 2920,3 4262,1 5270.0 8203,3 5301,5 Number of Contracts 6.712 19.383 24.233 28.615 37.278 42.963 51.519 19,878 Equipment Penetration % 4,25 6,72 7,72 6,8 7,64 7,70 7,70 7,0 Source: FIDER 4
LEASING STATISTICS Leasing in Turkey by Asset Type ( 2008) Air transportation vehicles; 2% Vehicles; 9% Others; 2% Real estate ; 8% Office equipment and computers ; 6% Printing equipment ; 3% Electronic and optical equipment ; 3% Marine vehicles; 2% Tourism equipment; 3% Construction machinery; 20% Manufacturing machinery and equipment; 26% Medical equipment; 7% Textile equipment; 6% 5
ABOUT LEASING ASSOCIATION (FIDER) Roots in 1989 with four companies namely Lease Club. FIDER officially established in 1994. Today 36 members which creates appx. 90% of the lease volume (dominated by first 15 companies, mostly bank subsidiaries). Own ethical codes signed by all members. Very active committees such as legal, accounting and tax etc. to be pro-active. Well acceptance and good relations by the government authorities as well as international institutions like World Bank, IFC,Leaseurope Leasing Associations. Experienced professional staff. Carries a well established library for the leasing studies or any other inquiries (for internal and external demand). Arrange extensive local and international training programs. Arrange promotional and motivational social activities in the sector. More info can be taken from Web site www.fider.org.tr 6
SECTOR SUMMARIES 74 registered companies (including 10 investment banks, 4 Participation Banks/ Islamic Banks and 3 Captives) Presently around 40 active players. First 15 players dominate the market (mainly bank subsidiaries). Contracts 95% full payout and average term is around three years. In general fixed interest rate. Low bad debt around 1% end 2007 (uncollected amounts around 6%). Increased to 3% in 2008 and still goes up. Appx. 7% (average last 5 years) of total private fixed capital investments. Cross border leases to Turkey only for high-tech. Average growth rate is around 40% in real terms although in some crisis years negative growth. (in 2007 38%). Unfortunately in 2008, 35% decrease because of VAT Law changes and worldwide economical unstability. Still one of the prior medium-long term equipment financing instrument, especially for SME s. 7
LEGISLATIVE FRAMEWORK (I) Leasing Law (No: 3226) governs only Financial Lease. New Tax Law (No: 4842) allows Operating Lease but harmonization between these two laws are still needed. Uncancellable period is four years (some exceptions such as cars, computers, photocopiers, construction machineries, buses, trucks, medical equipments, aircraft and vessels for two years). Lessor change is permitted. Sub Leasing is not allowed. Movables and immovables can be leased (except industrial rights such as patent rights, software etc). Lease rentals can be fixed or floating and can be in TL and/or FX. Lessor is the legal owner of the asset. 8
LEGISLATIVE FRAMEWORK (II) Leasing sector is governed Banking Regulation and Supervision Agency (BRSA) since January, 2006. Contracts should be registered with notary public to secure the ownership rights of Lessor. Lessor is obliged to take out insurance, Lessee should pay the insurance premium. In case of default 30 or 60 days grace. Total book value of the leased assets can not exceed 30 times of the shareholders equity. Minimum capital requirement is TL 5 million (appx. USD 3 mio.). Cross Border Leasing contracts should be registered with the BRSA. 9
ACCOUNTING AND TAXATION (STILL ON) IFRS since 2007 for all enterprises. VAT 18% (8% in trucks and commercial vehicles, medical equipments some industrial machineries and construction machineries). VAT has been increased from 1% to 8% and 18% since January 2008. 0.5% witholding tax on Cross-border rental payments. No stamp duty or any tax on the lease contracts. Only small fix cost for notary public. Corporation tax 20% (decreased from 30%). Investment Incentives for special sectors and/or regions with 0% VAT allowance. 10
DRAFT NEW LEASING LAW Operating Leasing. Sale and Lease Back. Sub Leasing. Software Leasing. Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud). Association to cover all leasing companies (obligatory). Registration of lease contract with Association meaning less bureaucracy than ex Notary Public application (but may be less legal strength). General and specific provision guidlines (similar to banks). 11
TURKEY S GENERAL POSITION DURING AND AFTER THE CRISIS (+) No subprime mortgage credit in Turkish finance sector. Rating of the credits are prudent. There is no bank 12% primary capital ratio. Transparency is very high comparing the other countries. Thank to BRSA. Acceptable level of risk for repayment or roll the existing loans in the finance sector. Political stability. (-) Although many positive and strong position in the market there are and expected some negative developments; (i.e. No direct effect but expected indirect effects). Liquidity problem because of credit crunch. Higher spreads, shorter maturities. Problem in reel sector with USD 75 bio. FX debt(open position risk as well). Presently current account deficit is 3% of GDP, amounting appx. USD 41 bio. end 2008. Increase in oil and energy prices might worsen the deficit(presently no problem). Decrease in portfolio quality, collection and default problems. GDP plans, inflation plans, FDI s 12
TURKISH LEASING SECTOR BEFORE - DURING AND AFTER CRISIS Turkish Leasing Sector Before Crisis Financial Sector consolidated (mainly banks and consequently leasing and factoring companies). FDI in financial and insurance sector. Partnership 50% (AK-Citi, TEB-Paribas, Garanti-GE). Partnership > 50% (Dis-Fortis, Finans-NBG, Deniz- Dexia,Abank-Alpha). Country rating still low but improved from B stagnant to BBpositive. Rapid margins decreases. Severe competition. Returns do not justify the customers risk rating. There is a demand for small ticket. Considerable Flow Business and Renting potential. New Leasing law draft is under consideration and sent to State Ministry from BRSA (Organizational issues have been circulated in January, 2007). New Mortgage Law has been introduced, leasing companies can finance houses via Mortgage for individuals. Low bad debt. Turkish Leasing Sector During and After Crisis New consolidation in finance sector including leasing. Some foreign investors might leave the country. More captive lessors to come to market (Volvo, Man, Hitachi/Enka, Caterpillar recently came). Country rating l came down to BB neutral from BB positive i.e. CDS increased meaning expensive borrowing. Competition edge is on long term funding. Spread seems second priority. In shorter terms (up to 1 year) severe competition comes from the Banks. Small-mid ticket vendor programs almost zero.no demand. New Leasing law Draft is under consideration and sent to Prime Ministry from Satate Minsitry. New Mortgage Law has been introduced, leasing companies can finance houses via Mortgage for individuals. Collection becomes problem. Higher bad debt. 13
PROSPECTS Improve margin via taking asset/rv risks (operating leasing,techfresh etc.). Asset Management and Risk Management will be crucial (Basel II to be applied within 3 years) (2008 postponed). We might see bigger deals via syndication. New financial openings like operating leasing, sale and leaseback, sub leasing, software leasing will increase the growth rate and penetration. Learning organizations (Dynamic and ongoing trainings). Technology investments (IT,software). Brokership will increase. Longer term funding /Specialization/Value Creation/ Innovation will differentiate the lessors. 14
THE MOST POWERFUL SECTORS OF TURKEY World s 2 nd largest manufacturer of flat glass World s 6 th largest producer of cement and cotton One of the world s 5 largest jewellery manufacturer The biggest textile manufacturer in Europe The biggest TV manufacturer in Europe The biggest fertilizer manufacturer in Europe 6 th largest manufacturer of refrigerators in Europe 7 th largest iron and steel manufacturer in Europe 15
TURKEY WELCOMES YOU Thank you for your attention. Siemens Finansal Kiralama A.S. BÜLENT TASAR Managing Director Meclisi Mebusan Cad. No:45 34427 Findikli / Istanbul Tel : +90 (0 212) 251 02 07/08 Tel (Direct) +90 (0 212) 252 92 09 Fax : +90 (0 212) 293 35 30 e-mail: bulent.tasar@siemens.com 16