The growth of financial leasing demonstrates how companies are increasingly recognising the advantages of this financing model and its impact on reducing costs, improving liquidity and increasing flexibility in the management of resources. This is also reflected in companies’ growing confidence in this alternative financing option
T he banking sector plays a dominant role in the financial sector and represents a key factor of stability for the financial system, while the importance of financial leasing is simultaneously also on the rise.
According to the statistics of the National Bank of Serbia (NBS), the Serbian banking sector accounts for 90.7% of total assets of the country’s financial sector, while financial leasing accounts for a 2.5% share of total gross receivables. Rising interest rates over the previous period, amid monetary policy tightening by leading central banks and the NBS aimed at curbing inflationary pressures, could represent a challenge for companies and individuals that use alternative financing options for their businesses and lead to falling demand for loans and financial leasing as a result of the increase in the cost of borrowing, particularly for those accustomed to unusually low interest rates.
According to Darko Stamenković, general manager of the Bank Supervision Department at the National Bank of Serbia, the central bank carefully monitors developments on the domestic and international markets and responds timely with the aim of preserving the stability of the financial system and protecting the users of financial services. “It is important to underscore that when interest rate rises follow economic growth, which is the case in Serbia, various financing options, including financial leasing, remain attractive sources of investment financing,” explains Stamenković.
This claim is also illustrated by the fact that the banking sector’s investment loans continue to record year-on-year growth, despite challenges coming from the international environment, having amounted to 3.1% in June, while their share in total corporate loans reached 41%. Furthermore, financial leasing continues to record continuous growth as an alternative source of investment financing in Serbia, with the total balance sheet assets of all leasing providers reaching 158 billion dinars as of 30 September 2023.
Ensuring the diversity of options and providers of financial services, which the NBS has been working on intensively during the previous period, advances competition on the domestic market and enables clients to choose the best solutions that meet their specific needs
“Compared to end-2019, or over a period of less than four years, the total balance sheet assets of financial leasing providers increased by 53.5%, while recording growth of 9% during the first nine months of this year alone, against the background of increased interest rates. The most important lessees are companies that do not belong to the financial sector, with an 84.1% share of the total placements of financial leasing providers,” says Stamenković. “Looking at the lease assets, the largest participation in placements continues to relate to the financing of passenger vehicles (42.7%), as well as the financing of haulage vehicles, minibuses and buses (34.8%).”
All of the aforementioned serves to confirm the continued positive contribution of the financial sector to the growth and development of the domestic economy, concludes our interlocutor.
What kinds of trends can we expect in these two sectors in 2024?
— The banking sector consolidation in the previous period, despite being driven primarily by the decisions of shareholders in response to events unfolding on the markets of their parent banks, actually confirms the attractiveness of Serbia’s domestic financial system, and that is thanks to the active role of the NBS, which has contributed to further strengthening the resilience and stability of the financial sector, increasing banking sector efficiency and improving the quality and availability of banks’ financial services. New investments in the financial sector, such as the early 2023 greenfield investment in the financial leasing sector by a banking group that has a long tradition of doing business in banking and the leasing industry, are yet another proof of investor confidence in the continued growth and development of the domestic financial market.
Banks provide traditional services, such as loans and lines of credit, while financial leasing enables users to gain access to funding without the need for direct ownership. It is precisely for this reason that financial leasing often offers faster approval and less demanding procedures when compared to traditional bank loans, which makes this option particularly attractive to SMEs seeking faster access to capital. Regardless of this fact, the financial leasing sector traditionally has a low share of NPLs in its total portfolio, while financial leasing receivables past due for more than 90 days stood at just 1.03% of total gross receivables as of 30 September 2023, which points to the positive contribution of the financial leasing sector to the sustainable financing of households and businesses.
What kind of support to the economy can these two sectors provide in the year ahead?
— The NBS expects all participants in the domestic financial market – respecting the needs of their clients – to adapt their strategies by offering innovative products, adjusting interest rates or offering additional benefits, under current conditions of higher interest rates, in order to remain competitive and maintain the financial sector’s positive contribution to total economic activity.
The NBS works continuously on amendments to the regulatory framework that support the development of the financial leasing market in the country, thus contributing to increased legal certainty and transparency in doing business and creating healthy competition that will benefit end-users. The NBS’s latest amendments to the Decision on Management of Risks Arising from Introduction of New Products/ Services by Lessors enable financial lessors to provide – in addition to financial leasing services – the related financial services, such as operational leasing services, with which the quality of the lessors’ offer has been expanded and improved. These changes increase the attractiveness of the market to both domestic and foreign investors.
Looking to the future, in the context of the growth prospects of Serbia’s domestic financial leasing market, the possible role of this financial instrument in supporting the financing of green technology and electric vehicles is worthy of special consideration. In line with trends in the international environment, financial leasing has a significant potential role in the provision of funds for companies and individuals seeking to invest in electric vehicles, as well as in providing financial support for other green technologies, such as financing the purchase of solar panels, energy-efficient systems and other eco-friendly innovations.
Companies wanting to implement green technologies have the possibility to take advantage of financial leasing as a means of investing without significantly burdening their liquidity
Financial leasing could play a role in financing the purchase of solar panels, energyefficient systems and other ecofriendly innovations
The total balance sheet assets of financial leasing providers grew by 53.5% in less than four years, while recording growth of 9% during the first nine months of this year alone, against the background of increased interest rates