Leasing industry in for good times

By Lalin FERNANDOPULLE

The leasing industry which faced a setback in recent years due to the country’s financial crisis is in for good times following the revival of industries and tax reductions on import of vehicles.

Leasing industry experts said that the value of leases written would surpass Rs. 60 billion by end of the financial year, March 2011. A gradual increase from the previous year.

The value of leases booked dropped to around Rs. 58 billion in 2008/09 from Rs.70 billion in 2007/08, a negative growth of 18 percent due to the financial crisis.

Assistant General Manager, Bartleet Finance Ltd., Nigel De Lile said the leasing industry which is centred around commercial and passenger vehicles would benefit from the slash in vehicle import levies and the development in the transport sector.

Around 95 percent of the leases are for vehicles. Leasing companies have not been aggressive in promoting equipment leases due to the lack of an established secondary market, difficulties in the recovery of leased assets and delays in court procedure.

Hire purchase/loan instalments are not liable to VAT as the lease rental. This disparity has made a significant shift in the lease business to hire purchase, industry sources said.

Deputy Chairman, Alliance Finance Co. Romanie De Silva said the leasing industry will recover with the vast opportunities for businesses in the North and the East.

“Leasing will have a major share in the process of rejuvenating dormant industries in the North and East regions. Tourism, construction and transportation are the sectors that require leasing”, De Silva said.

Leasing industry stakeholders have formulated a strategic plan for the industry that would be discussed with the Government.

Leasing which commenced in the early 1980’s with two specialised leasing companies has grown over the years and currently the industry has 74 organisations of which 21 are specialised leasing companies, 34 finance companies, 11 commercial banks and specialised banks.

The stiff competition among lessors has resulted in the erosion of margins and accommodation of risk at the expense of quality. Industry participants are worried over the increase in arrears and non performing leases.

Lessors said the industry needs a level playing field and incentives to tide over tough times.

Financing the SME sector which does not get adequate funding from banks is an opening for the leasing industry. Leasing is a process by which a lessee could obtain a certain fixed asset for which he must pay a series of contractual, periodic tax deductible payments.