Positively Polish: leasing well placed for recovery

The latest report from the Polish Leasing Association (PLA), published just days before this issue of Leasing Life went to press, offers a valuable insight into how the 29 leasing companies, and the Polish Association of Vehicle Hiring and Leasing, that make up its membership performed last year.

The total amount of financing granted by PLA leasing companies amounted to PLN (Polish zloty) 70.1bn (£13.5bn), with management of leasing transactions amounting to PLN 60.2bn (£11.6bn) and the remainder accounted for by loan agreements.

A year-on-year fall of 24% during the first half of 2020 was followed by a 15.5% decline in the third quarter before an upturn between October and December when volumes actually rose by 4.8% compared to the same period in 2019. Overall volumes for the year were down by just over 10%.

Looking at individual market segments, the lease value of light vehicles at PLN 33.3bn (£6.4bn) was just 5.7% lower than the year before despite a 35.2% decrease in the second quarter.

In April, the European Commission approved the launch of the Financial Shield support programme of the Polish Development Fund (Polski Fundusz Rozwoju) for small and medium-sized enterprises. Applications for financial aid under the programme could be submitted starting from late April via the electronic banking systems of the banks cooperating with the fund.

According to Andrzej Sugajski, director general of the PLA, the subsidies from this programme were a major factor in limiting the fall in the level of purchases of passenger cars to 6.7% year-on-year by making it possible for entrepreneurs to maintain liquidity and employment in companies.

The development of the e-commerce sector influenced the financing of delivery vehicles and trucks weighing up to 3.5 tons where volumes were only 0.3% lower than in 2019. “There was a significant increase in the average value of contracts for financing of light vehicles, although this was largely accounted for by an increase in prices of new passenger cars,” says Sugajski.

The machinery financing sector was least affected by the recession and, consequently, machines were among the most popular categories of fixed assets financed in 2020. Total financing provided by the leasing industry for investments in machines and other equipment amounted to PLN 20.4bn (£3.9bn) in 2020, down only 5% on the same period in the previous year.

“Positive results were recorded in the financing of agricultural machinery, medical equipment and machines for the food industry,” says Sugajski. “Sectors negatively affected by the changes in the overall economic situation include machines for plastics processing and metalwork, and printing machines.”

The pandemic had a considerable negative effect on the volume of financing of truck purchases. In this market segment the amount of financing declined across all product groups, including such assets as trucks weighting over 3.5 tons, truck tractors, semi-trailers and trailers, as well as buses. The data accumulated by the PLA at the end of 2020 indicates that the total value of new contracts for truck purchases was down by more than a quarter from the 2019 level.

Sugajski observes that from the second half of 2019 until August 2020, almost every month was marked by year-on-year declines in the amount of financing granted by leasing companies to this segment of the market.

“The earlier problems of the transport industry related to the implementation of the mobility package overlapped with the greatest economic crisis of the post-World War II eurozone, and restrictions in freight and passenger transport,” he explains.

“As a result, there has been a strong market disturbance in areas related to both international and collective transport. The sharpest falls were recorded in the first months of the pandemic and the first half of the year ended with a 39% decline. However, since November there has been a noticeable rebound in the financing of the heavy transport sector with an average growth rate of 28.9% year-on-year.”

The leasing industry in Poland has offered various forms of support to customers affected by the pandemic. Companies changed their payment schedules and deferred the payment of leasing instalments for a period of 3-6 months and from the beginning of the crisis until the end of September, ‘leasing holidays’ were extended to over 170,000 entrepreneurs across more than 380,000 contracts.

In early 2021, the banking sector announced the reinstatement of the non-statutory moratorium, meaning customers of leasing companies could once again take advantage of the possibility of postponing or reducing the payment of leasing instalments.

“The leasing industry is also working on additional support solutions for customers affected by the crisis,” adds Sugajski. “At the end of last year, leasing companies participated in talks with the office of the President and representatives of the government and other institutions supporting the economy. In the meetings and workshops, they worked together on solutions to help coach tour operators manage and maintain their fleets until tourism is allowed to resume.”

Experts from national development bank, Bank Gospodarstwa Krajowego, and the leasing sector are currently determining the details of guarantee programmes that will make it possible for such entities to take advantage of more preferential leasing terms underwritten by the Pan-European Guarantee Fund.

A member survey conducted by the PLA suggests that lease companies expect the first quarter of 2021 to yield an increase in employment and sales activity but also a significant deterioration in the quality of their portfolios.

“Leasing companies also expect that the level of financing will increase in most of the analysed groups of fixed assets,” says Sugajski. “Clear increases in financing are expected in the light vehicles and real estate sectors. The prospects for financing of machines and IT equipment will remain good, although slightly weaker than in the above-mentioned cases. On the other hand, negative prospects are expected in the area of financing of heavy transport vehicles.”

Rafal Piskorski, country manager Poland at BNP Paribas Leasing Solutions, says the coronavirus stimulus package of more than €30bn (£26bn) in various programmes – of which €13.5bn was immediately transferred to the most affected businesses with the aim to provide working capital and avoid large scale unemployment – worked well.

“As a comparison I would point out that the Polish leasing market dropped 30% in 2009 after the global financial crisis,” he says. “Keeping in mind that during the second quarter of last year our economy was almost entirely closed, a 10% drop in the volume of assets financed is a relatively good result.”

Having offered a grace period of up to six months and automated the moratoria process, in August BNP Paribas contacted several thousand of its clients to get their feedback on its services. The result was a net promoter score of 68% which Piskorski says confirms that the company responded to its customers’ need. In addition, 91% said they were satisfied by the way the company handled their payment deferral requests.

Over the last 18 months BNP Paribas Leasing has accelerated financing for sustainable equipment such as photovoltaic panels in Poland and continued to digitise its processes. “Through tools like e-signature and online client portals, we try to provide as much autonomy as possible to our clients and partners, across market segments and sometimes in collaboration with other group entities,” says Piskorski.

Poland’s Q4 economic activity data came as a pleasant surprise. Industrial production increased by 11.2% year-on-year and the construction sector also recorded solid growth, which may translate into a much lower GDP contraction in 2020 than was initially forecasted.

“Despite the long restrictions on economic activities due to the pandemic, the industry remains in good shape and the level of decline in activity at the beginning of this year will probably be much smaller compared to spring 2020,” says Piskorski.

The relatively positive outlook for 2021 indicates that businesses have adjusted well to the ‘new normal’ and additional stimulus from the EU to encourage recovery (the next generation EU budget will reach €19.9bn (£17.2bn) in 2021 and 2022) is expected to yield an investment rebound in the coming quarters, which will undoubtedly help the sector.

“We should see higher new business volumes in 2021 than 2019 (as a pre-Covid baseline),” adds Piskorski. “That is of course assuming we do not have another wave of the virus this year and depends on how markets react to the growing public debt.”

Despite the decline in new investments in 2020, leasing remains an important driving force of investment and development for Polish companies and the wider economy. It stimulates investments, providing companies with access to capital, and has a positive impact on innovation because it facilitates access to advanced and expensive technological solutions.

That is the view of Beata Klonecka, board member at ING Lease (Poland), who also refers to the efforts Polish lease companies have made in providing various forms of support to their customers during the pandemic.

“In addition to the possibility of changing their repayment schedules and deferring the repayment of leasing instalments, the leasing industry is also working on additional support solutions for clients affected by the crisis,” she says.

Work is also underway on warranty programmes that will allow clients to take advantage of leasing on more preferential terms.

Aside from coronavirus, Klonecka refers to the digitisation of the leasing process and providing the possibility of signing contracts with an electronic qualified signature, e-signatures, as the most significant developments in the Polish leasing market over the last 18 months.

“Previously, due to specific legal provisions the leasing process required a paper signature on lease contacts on pain of nullity,” she adds. “This was a significant barrier for leasing to enter the digital world. The solution that could eliminate this barrier was to enable signing of lease agreements in the form of an electronic signature and thanks to that, the leasing process can now be done 100% online.”

In common with many of its peers in the leasing market, ING Lease observed increasing new investment activity by companies and entrepreneurs during the final three months of last year.

“This had a positive impact on the leasing market and in 2021 leasing companies expect an acceleration in sales activity and a recovery from last year's losses,” concludes Klonecka. “Increases in financing are expected for light vehicles and the real estate sector and the prospects for financing machines and IT are slightly weaker, although still clearly positive. On the other hand, negative prospects are expected in the area of financing heavy transport vehicles.”

There was also a positive end to the year for Europejski Fundusz Leasingowy (EFL Leasing), a subsidiary of Credit Agricole Group, which in December alone financed assets worth more than PLN 700m (£135m) – the second-best result in its history. The company closed the year with a slight loss (-0.7%) but increased its market share from 7.3% to 8.1% says Radosław Woźniak, president of the management board.

“An important regulatory change over the last 18 months has been the introduction of regulations aligning the treatment of a sole proprietorship with that of a consumer,” says Woźniak. “On 1 January 2021, an obligation was imposed on the whole financing sector – including leasing companies – to ensure even more transparency of contracts and align part of the rights of sole traders with the rights of consumers to increase micro-enterprises' legal protection.”

In September 2020 the Ministry of Finance announced a new tax relief to be introduced for developing enterprises. The so-called ‘relief for robots’ was created for production companies planning to purchase equipment to support automation.

“The projected tax relief assumes that taxpayers will be allowed to deduct 50% of their tax-deductible costs from the taxable base,” explains Woźniak.

“These may include the costs of robotisation of workstations and automation of the production process. If an enterprise wants to make use of the relief, it must incur specific costs related to the purchase of fixed assets or software. The cost of purchasing such assets is the so-called eligible cost,” he says.