Sources of information on leasing markets
The sources of information about the leasing markets are numerous. We realize that we will not be able to cover everything in just one article. Accordingly, for the more curious readers, who would like to expand their understanding of the leasing markets, we also provide hyperlinks to the original sites of companies, organizations and research from reputable sources which we have used while writing this article.
Leasing is a form of credit activity. As such, it is usually highly regulated. In most countries, the regulators are the Ministry of Finance or the respective National Bank. In Bulgaria this is the Bulgarian National Bank. Accordingly, regulators are also a great source of information about the development of the leasing market in the given territory. The BNB maintains a public register with the names of “non-bank financial institutions” (here besides leasing companies there are also other non-bank financial institutions) and quarterly summarized information about the leasing market in Bulgaria, which also includes statistical analysis.
The second good source of aggregated market information about the leasing market are the leasing associations. Each country usually has one or two associations that typically cover the bulk of the leasing market in that country. In Bulgaria the “Bulgarian Leasing Association” covers about 90% of the leasing market of the country. For the continent Europe, where the leasing is highly developed, and the countries – many, an “association of associations” was created, which unifies all European (not just EU) leasing associations – Leaseurope. The representation of Leaseurope reached 93% of the whole market in 2016:
There are, of course, many specialized agencies for market research, as well as the big audit firms, whose research and reports are also interesting and informative. Unfortunately, most of them are paid services.
How do we measure the leasing market?
The leasing market is measured in absolute terms with two main indicators.
The first one is “New business” (new leasing business, new production) for a given period of time. This represents the sum of the investments (delivery price minus the initial installments) of the lessors in all leasing contracts for a given period (year, half year, quarter or month). For example, Leaseurope’s members new leasing business for 2016 is EUR 333.7 billion, or 10.3% up from 2015.
The “new business” can be seen as a litmus for the economic activity in a country or region, insofar as much of the investment is done through leasing finance. For example, studying the new leasing business, or, in particular, its growth or decline, gives us a good idea of the recovery of the economies from the crisis in 2008. Here’s Leaseurope’s analysis:
The second indicator, which is monitored in the analysis of the leasing market, is the so-called “Leasing portfolio” (lease receivables, lease outstandings). It represents the sum of all receivables of the lessor(s) under all leases on a given day – for example, as of 31.12 …. For example, Leaseurope’s 2016 leasing portfolio is EUR 779 billion, marking a 6.44% growth y/y:
And here is the development of the Bulgarian leasing portfolio over the years, as posted by the Bulgarian Association for Leasing (only in the Bulgarian language) – Leasing Portfolio in thousand BGN:
By analyzing the above two indicators, it is possible to estimate the growth / decrease of the leasing market, the asset structure, the average duration of the new transactions or of the existing portfolio, the structure of the new or existing lessees (companies, men, women, etc.), the market for different types of leasing, etc. For example, in a study, the White Clarke Group compares the new business in the world by region for the 2013/2014 period:
However, if we only use the above two metrics, something will remain hidden. It is worth mentioning another one – a third indicator, which helps us understand the importance of the leasing service for a given country, industry or segment. For example, if we compare the new business of Bulgaria (EUR 806 million) to that of the UK (EUR 73.8 billion) in 2016, we can hardly understand how much the leasing service has “penetrated” the economy of the respective country. Therefore, the third important indicator for the analysis of the leasing market is “leasing penetration”. Lease penetration is calculated as the ratio between the new business for a given period (usually year) and the gross domestic product of the respective country for the same period. Here is the lease penetration in the top 30 countries in the world, ranked by the “new business” indicator in 2012-2014 by the White Clarke Group:
Bulgaria ranked 20th in this ranking with a 1.31% lesing penetration. By analyzing leasing penetration, we can immediately determine the importance of the leasing industry to a given market as well as potential expectations for the future.
The leasing penetration indicator also has variations. For example, when the new leasing business refers not to GDP but to the sum of all investments in a given country. Another variation is “leasing penetration in automotive sales”, where the leased cars are divided by all the cars sold, and so on. Each variation of the metric helps analyze a market sector. In “leasing penetration”, it is important to know exactly which modification of the metric is used.
Geographic leasing markets
While introducing the main measurements for the leasing market above, we also looked at several rankings of geographic regions and individual countries.
Exploring leasing markets geographically allows for an understanding of competition and prospects for various markets. For example, Leaseurope groups countries from the European market, thus showing the state of development of each region. Here’s the 2013 data:
We can immediately deduct that the CEE region, where Bulgaria is also included, has a huge potential for growth in the coming years. This may be immediately proved by a second analysis of the growth of new business by country:
Asset leasing markets
The focus of each leasing transaction is the Lease asset is the subject of... More. From other articles we already know that not all assets are suitable for leasing. A question of interest may be, however, of the assets which are suitable for leasing, which is the most often leased one?
These data is for 2013, and has been compiled by Leaseurope for the whole European market. The undisputed leader for lease financing is the automotive sector, taking as much as 60% with its two segments – „commercial vehicles“ and „cars“. The most poorly developed is the leasing of real estate, where other forms of finance are often preferred (eg. a mortgage loan) and more widely used.
The analysis of the leasing market by asset class also gives an interesting perspective for the recovery of Europe from the 2008 Crisis – where the growth of the new “machinery and equipment” business is rapidly recovering after the 2008 drop, as opposed to the growth in the new real estate business, whose market downturn is much more sustainable (again data from Leaseurope):
… and the recovery of the leasing market following the crisis is again led by the automotive sector with its two segments, which marks the strongest growth unlike the leasing provided to all other sectors:
Bulgaria is no exception in the breakdown of its leasing market by asset class. Here is the data for new business by asset class in 2016 as have been presented by the Bulgarian Association for leasing:
Leasing markets by leasing type
The two big market sectors by leasing type are “A leasing contract, under which, the... More” and “Operational leasing”.
As a starting point, it should be noted that the operating lease services can benefit a very limited asset types (unlike financial). Here is a chart and graph of the new business under "Operating leasing" or "Operational leasing" or... More in Bulgaria in 2016:
The fact is that the automotive sector most often benefits from the operating lease services. In addition to the Bulgarian market, the mix of assets under operating leases around the world often includes operating leases of aircraft and some types of industrial equipment.
The differences between the "Operating leasing" or "Operational leasing" or... More market and the see "Financial leasing"... More market are not limited to the served asset sectors. The volumes of both markets are also very different. For Bulgaria this difference is extremely high. According to data published by the Bulgarian National Bank, here is how the proportion of the two leasing markets looks in Q2 2018:
Many more diverse market segments and combinations among them are often used: leasing markets by type of The lessee is the user of... More, type of One of the parties to the... More, The lease, or leasing term, is... More, lessee’s payment behavior, etc.
The collection of data on the different segments of the leasing markets and their analysis give us important insight about the investment activity, the maturity of the market and the prospects for it. This statement is particularly important for countries which are “catching up” with other more developed markets, similar to Bulgaria. Thus, we have the opportunity to accurately predict the development of the market even in the long term – within the next 10 years, as well as orientating our behavior accordingly.
For further reading on “Leasing Markets” you may explore the articles in our Blog: