I am pleased to present the 13th edition of the Leasing Year Book 2009 of the Leasing Association of Pakistan (LAP) covering statistics of the sector for the year ended June 30, 2009. The Executive Committee records its appreciation of the contribution by Members and the Secretariat of LAP in making this year book a widely acclaimed publication.

The year book contains comparative financial results of individual members as well as the overall leasing sector. It also contains messages from the Governor, State Bank of Pakistan, Syed Salim Raza and Chairman, SECP, Mr. Salman A. Sheikh.

Economy
The Country is engaged in war against militants which has unfortunately slowed economic growth, industrial activity and more importantly domestic and foreign investment. Persistent power shortage and lower private sector lending by banks have further affected industrial output and exports. State Bank of Pakistan (SBP) estimates suggest that GDP growth in fiscal year 2010 is likely to be around 3% - a little higher than 2% recorded in the fiscal year 2009. The major impetus for this growth is expected from services sector while the growth of manufacturing sector remains a point of concern. Agriculture sector is showing some signs of improvement. Cotton crop is higher than last year and its effects are permeating to other sectors particularly textile and its exports.

Performance of the external sector of the Country is encouraging. The external current account deficit declined to US $ 2 billion during first half of fiscal year 2010 from US $ 7.8 billion in first half of fiscal year 2009. The sustained flow of workers' remittances of US $ 4.5 billion during first half of 2010 compared to remittances of US $ 3.4 billion in the same period last year has contributed towards the reduction of the external current account deficit.

Performance of the Leasing Sector
The leasing sector was performing well since inception of the first leasing company in 1984. However, the economic downturn, adverse business conditions and liquidity crisis have affected the sector negatively since October 2008. For the first time in its history, the leasing sector recorded a loss of Rs.3,268 million in the fiscal year 2009.

Business environment for other sectors of the economy also deteriorated. With rising delinquency levels, leasing companies adopted a cautious marketing approach to counter higher credit risk. Weakening economic conditions increased non-performing portfolio of leasing companies which not only resulted in suspension of income but also required higher provisions against doubtful receivables. Serious fund mobilization issues forced companies in the leasing sector to utilize available cash flows from rental recoveries for repayment of borrowings. This resulted in a huge drop in volume of new business which declined by 30% to Rs.22,074 million from Rs. 31,463 million in financial year 2008.

Financial Performance
Operating revenues were lower at Rs.10,528 million compared with Rs.12,922 million for the preceding year. Financial charges increased to Rs.7,396 million as compared to Rs.6,675 million in the previous year. Provision for delinquent portfolio increased to Rs. 1,711 million (2008: Rs. 629 million). Major portion of non performing portfolio relates to sectors that have underperformed due to uncertain conditions prevailing in the Country. A concerning factor is the drop in revenue earning assets from Rs. 84,846 million to Rs. 68,801 million. This decline is mainly due to drop in new business volumes. Due to losses suffered by the sector, equity of member companies went down to Rs.11,931 million (2008: Rs.15,890 million).

Mergers and Acquisitions
An important development during the fiscal year was a fall in LAP membership as three leasing companies merged with and into investment banks and commercial banks. Moreover, three members opted to discontinue leasing business and resigned from LAP's membership. As a consequence, the number of members has gone down from 25 to 18, comprising of 11 leasing companies, 4 modarabas and 3 investment banks.

International Multi Leasing Corporation Limited merged with Al-Zamin Leasing Modaraba.

Al-Zamin Leasing Modaraba and Al-Zamin Leasing Corporation Limited merged with and into Invest Capital Investment Bank Limited. Network Leasing Corporation Limited merged with KASB Bank Limited. Subsequent to the year end, the merger of Askari Leasing Limited with Askari Bank Limited was approved by SBP and SECP.

The following members resigned from the membership of LAP:

1. Escorts Investment Bank Limited     Resigned on September 30, 2009
2. IGI Investment Bank Limited           Resigned on September 29, 2009
3. Pak Oman Investment Co. Ltd.       Resigned on February 03, 2010.

Merger of LAP and MAP
The Leasing Association of Pakistan was granted licence under section 3 of the Trade Organization Ordinance, 1961 by Ministry of Commerce, Government of Pakistan on March 28, 1995. The new Trade Organization Ordinance, 2007 (TOO, 2007) was promulgated on December 14, 2007 which required all associations to obtain new licenses. LAP was advised by the Director General Trade Organizations (DGTO) that new licenses will not be issued to NBFC's individually due to similar nature of business and also due to smaller number of the members in the Associations. The DGTO advised that all NBFC Associations should merge and submit a fresh application for registration.

In light of the above, Members of LAP in their 14th Annual General Meeting held on October 27, 2009 approved merger with Modaraba Association of Pakistan (MAP). M/s. Mohsin Tayebally & Co. have been appointed Legal Consultants for the merger. An application has been submitted to the DGTO for registration of the merged association under the name of "NBFI & Modaraba Association of Pakistan". After registration of a new merged association, LAP will cease to exist.

Non-Banking Finance Companies (NBFCs) Rules & Regulations
The Leasing Association of Pakistan continued deliberations with SECP to address the pertinent issues and proposed amendments in rules and regulations. The SECP vide its SRO 60(1)/2010 dated February 03, 2010, proposed following amendments in the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003:

1. Extension of validity period for NBFC license renewal from 1 year to 3 years;
2. NBFC licensed to undertake Investment Finance Services allowed to engage in brokerage business.

Leasing for Micro and Small Enterprise (LMSE) Program Phase III
The four year (2003-07) Program LMSE Phase III, 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 ended in September 2009. The SDC program encouraged participating partners to market lease finance in the micro and small enterprise sector and also to promote innovative methods to serve the needs of enterprises within the sector.

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

14th Annual General Meeting
14th Annual General Meeting of Leasing Association of Pakistan (LAP) was held on October 27, 2009 at Pearl Continental Hotel, Karachi.

A Special Resolution in connection with the merger of the Leasing Association of Pakistan with Modaraba Association of Pakistan was unanimously passed by Members. The General Body also approved the name of the merged association as "NBFI & Modaraba Association of Pakistan".

Future Outlook
Despite the severity of challenges faced by the leasing sector a number of Members have shown resilience in facing the crisis. The management of these companies is focusing on consolidation and has tightened credit and risk management policies. As the economy recovers, the leasing sector is well positioned to regain its position. The sector will continue to focus on serving SMEs as there remains a large gap between the demand of SME sector and availability of formal financing to SMEs. Recent data shows that the share of SME finance in banks' total financing is only around 10% and only 7% of total SMEs use formal financials institutions for meeting their funding needs. SMEs have not been able to avail their due share in financing from the formal sources, particularly the banking sector, because they are considered risky as they do not offer collateral as security.

Syed Salim Raza, Governor State Bank of Pakistan, while launching two new schemes to boost credit flow to SME and Agriculture Sectors, observed that these sectors are the largest source of employment in the Country. He said that "within these sectors lie Pakistan's best prospects for economic growth, reduction in income disparities, poverty alleviation and the promotion of innovation and entrepreneurship".

Highlighting the importance of the leasing sector, Mr. Salman Sheikh, Chairman SECP in SECP's Annual Report 2009, acknowledged that leasing is a successful model and it would be promoted by allowing operational flexibility to leasing companies to cater to the specific financial needs of customers. Pakistan's leasing sector is a major component of financial services sector and has played a vital role in economic growth and development, especially in small and medium enterprise segment. Acknowledgement Here, I would like to acknowledge the support of the SECP to the leasing sector over the years and expect that with its guidance and advice under the leadership of Mr. Salman A. Sheikh, Chairman, the leasing sector will achieve sustained success. I express my gratitude to the Governor, State Bank of Pakistan, Ministry of Finance and Federal Board of Revenue for their continuing support. I am also thankful to Members of the Leasing Association of Pakistan, Executive Committee Members, Secretary General and staff of LAP for their contributions and support in running the affairs of the Association.