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lines of NBFC sector were withdrawn, by commercial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.