I am pleased to present the 12th edition of the Leasing Year Book 2008 covering statistics of the leasing sector for the year ended 30th June, 2008. Over the years, Leasing Association of Pakistans year book has become an authentic reference book for all stakeholders, research analysts and investors in the financial sector. The Executive Committee records its appreciation of the contribution by Members and the Secretariat of Leasing Association of Pakistan (LAP) in making this Year Book a widely acclaimed publication.

The Year Book contains comparative statistics of individual Pakistan members as well as an overall comparison of the entire sector. It also includes messages from the Advisor to Prime Minister on Finance, Revenue & Economic Affairs Mr. Shaukat Tarin, Governor, State Bank of Pakistan Syed Salim Raza, and Chairman, Securities and Exchange Commission of Pakistan (SECP) Mr. Salman A. Shaikh.

Economy
The last quarter of 2008 was affected by global economic turmoil unprecedented in the world history which no one could have predicted. Pakistans gross domestic product (GDP) growth rate, after five years of respectable growth averaging 7%, dropped to 5.8% in financial year ended June 2008. GDP growth for 2009 financial year is estimated at around 2.5% as a consequence of global slowdown, power deficit, law and order situation, high interest rates and soaring inflation. The economic review contained in the SBPs annual report for 2007-2008, presents a gloomy picture of the economy. Highlights include declining key indicator, signifying a slowing economy with rising fiscal and current account deficits. The IMF approved a stand by arrangement of US $ 7.6 billion on November 24, 2008 to stabilize Pakistans economy especially the balance of payment and fiscal deficit. In the midst of a contracting economy, in October 2008, credit lines of NBFC sector were withdrawn, by commercial banks and short term funds were provided at exorbitantly high rates. As a result, the sector suffered huge losses subsequent to the year end. Details of losses suffered by the leasing sector were being compiled at the time of writing this review.

Performance of Member Companies:
Economic slow down resulted in new business volume dropping by 4% in financial year 2008 to Rs.33,950 million from Rs.35,532 million in the corresponding period last year. Leasing volume was largely derived from asset based funding to small and medium size enterprises being distributed over plant and machinery, vehicles and equipment. Revenues increased by 12.50% from Rs.15,028 million to Rs.16,907 million. Increasing interest rate environment resulted in rise in financial charges which were higher by 5.75% at Rs.8,954 million from Rs.8,467 million in the preceding year. The profit for the year ended 30th June, 2008 was Rs.2,094 million as compared to Rs.636 million in fiscal year June 2007. The profit for the previous fiscal year was understated on account of losses amounting to Rs.538 million reported by two companies which have merged.

Members cumulative assets increased to Rs.136,569 million in 2008 against assets of Rs. 128,315 million in 2007 showing a growth of 6%. Investment in lease finance decreased marginally from Rs.72,908 million to Rs.71,597 million in 2008. The break down of finance lease asset portfolio was well diversified car and commercial vehicles being around 52.84%, followed by plant and machinery at 39.50% and computers and office equipment at 6.04%. The highly competitive nature of the market forced our members to invest in assets other than our core business for higher returns; consequently only 53% of total assets were in lease finance as at June 30, 2008. Total equity of the member companies increased to Rs.25,925 million as compared to Rs.21,059 million in the preceding year. This reflects the commitment of members to strengthen the equity base for future growth prospects. On the regulatory front, Securities & Exchange Commission of Pakistan has enhanced minimum equity requirement for leasing companies from Rs. 200 million to Rs. 700 million latest by the year ending June 2011. Statistics compiled for leasing sector show a return on equity of 8.08% (2007: 3.02%) and return on assets of 1.53% (2007: 0.50%).

The trend of declining volume continued in the second half of calendar year 2008 as the liquidity crisis hit the leasing sector more severely than other competing financial institutions.

Non-Banking Finance Companies (NBFCs) & Notified Entities Regulations 2008
In pursuance of its mandate, the association maintained close liaison with the Securities & Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP) to promote a congenial and effective regulatory framework. LAP has played a proactive role in identifying the key issues for the benefit of the sector and has developed a healthy corporate culture among its members. To facilitate NBFC Operations, SECP notified the Non- Banking Finance Companies and Notified Entities Regulations, 2008 on November 21, 2008 after consultation with stakeholders and the Association was provided opportunities to put our point of view across. In the amended regulations, the timeline for meeting equity requarement and implimenting provisioning criteria have been extended.

LMSE Program Phase III
The four years (2003-07) LMSE Phase III Program, an alliance between LAP (along with other Partners in the Program) and the Swiss Agency for Development and Cooperation (SDC) for promotion of micro and small enterprise leasing in the country aimed at enhancing access to the formal medium and long term lease finance delivery system for micro and small enterprises ended in December, 2007. The program was extended with an exit phase of 18 months to allow the Partners in the program to focus on consolidating the key achievements and capitalize on experience and knowledge gained from the program. The program has encouraged the Partners in the program to market lease finance in the micro and small enterprise sector and also to promote innovative methods to serve the needs of the micro and small enterprises.

We are grateful to the Swiss Agency for Development and Cooperation for their support to the leasing sector since 1996 through both loans and technical assistance to the leasing companies.

Mergers and Acquisitions:
During the year under review, International Multi Leasing Corporation merged with Al-Zamin Leasing Modaraba and Network Leasing Corporation merged with KASB Bank Limited. Due to mergers the number of LAP members decreased to 23 comprising of 13 Leasing Companies, 5 Modarabas, 4 Investment Banks and 1 DFI. A number of other member companies are considering the posibilities of merger due to prevailing business environment and regulatory/legal formalities are being completed. The trend of mergers and acquisitions is expected to continue as financial viability of a number of companies is under pressure due to liquidity crises and declining spreads.

Future Prospects:
Following the unprecedented financial crisis of 2008, political instability and deteriorating law and order situation, there is significant uncertainty which will have a bearing on demand for leasing in the short term. Additionally, in a difficult economic environment, companies will opt to delay or defer purchase of assets, whenever possible. Leasing being an asset driven product, it is likely that volume of business will fall in financial year 2009. It is also likely that the number of delinquent accounts wil increase in 2009 due to downturn in the economy and the consequent credit crunch and this will lead to higher non performing portfolio. The incremental provisioning against non performing portfolio will have an impact on profitability of member companies.

However, I am optimistic that leasing sector will adapt to the above challenges and companies with larger equity base and strong risk management framework will benefit from increasing business volume as overall market size has increased and a number of financial institutions have discontinued the leasing product.

I express my gratitude to Governor, State Bank of Pakistan for his support and welcome the appointment of Mr. Salman A. Shaikh, as Chairman of the Securities & Exchange Commission of Pakistan. As Commissioner, Mr. Shaikh, has supported and guided the Association in resolving the issues faced by the Sector. I also express my gratitude to the Ministry of Finance and Federal Board of Revenue for their continuing support.

My sincere thanks to Members of Leasing Association of Pakistan, Executive Committee Members, Secretary General and all the staff members for their contribution, help and support in running affairs of the Association.