Eastern Europe lessors’ post-pandemic opportunities depend on funding access

According to Fitch Ratings, Eastern European lessors are well-placed to benefit from post-pandemic demand for leasing products but volume growth could be hampered by constrained funding access. Following a decline in new business generation in 2020 (21 percent lower y/y by lease volumes), business volumes recovered in the first half of 2021 (up 13 percent y/y). Maintaining these growth rates, however, will in many cases depend on local banks’ willingness to increase exposure to the local leasing sector.

Leasing requires considerable long-term funding and most Eastern European lessors rely on lending from local banks, with access to other funding sources underdeveloped. This often leads to concentrated funding profiles and in some cases interrupted access to funding, hampering growth prospects. An exception to this is Poland where larger lessors have well-established access to local short-term capital markets. As a result, both leasing penetration and recent growth rates in the Polish market are above the Eastern Europe market average. Leasing penetration in other markets remains low, with subsidiaries of international companies often dominating operating leasing product offerings, leading to high lessor concentration.

Lessors that are units of banking groups or of large international lessor groups are best-positioned to make the most of the growth opportunities given their funding access. For independent lessors, small franchises and concentration by product and income sources weigh on Fitch’s franchise and business model assessments, often constraining creditworthiness.

(WBJ)