Signatulin M.

Donetsk National Technical University

Estimation of Leasing Companies’ Portfolio Risk

Last years in Ukraine production enterprises resort to iplementation of new form of investment cooperation – leasing. This financial mechanism involves in three spheres of economic activities – rent, credit and trade. It is represented to be transaction of fixed assets transfering by some leasing company for temporary use to some lessee with the following assignation of such assets or without it against leasing payments. That is why leasing company (lessor) is generating its own investment portfolio of leasing contracts.

Investors are to be firmly convinced about their expected profit from leasing projects implementation required to clear costs, to pay off debts and to provide capital investment recoupment. Evidently investment leasing projects are always exposed by the share of risk not to gain estimated profit or to loose capital being invested.

Gurantees for leasing companies can be not only mortgage liabilities but also confidence availability in possible existence of successful market for lesee’s production, therefore assurance in general project vitality.

Leasing company portfolio constitutes the set of leasing contracts, which have the parameters of risk and income [1], able to change under influences of:

- the portfolio structure change. For example, sale of the assets being transferred in leasing, with due operation term will influence on portfolio value reduction and profitability raise of the deal incase of such sale of price higher than the residual value of such property. On the other hand, new fixed assets aquiring and their further transaction in leasing will result in general portfolio value increase.

-         the change of risk and profitability of assets forming portfolio in view of changes of such assets and other states of the market. For example, lessee can face short-term changes in the states of the market, reductuion in demand of produced output or its prices fall. It will negatively effect the solvency of lessee and cause the hold back of leasing payments reducing general profitability of portfolio of leasing company.

Leasing companies are inhered investment risks, which form resulting portfolio risk. Taking into account picularities of the portfolio approach, change of the net value of the portfolio reflecting current or future value generating profits and costs, is considered to be effect of a leasing company economic activity. That is why the nature of portfolio risk is contained in the probability of deviation between future portfolio value and its expected value.

In the majority of cases portfolio risk appears as a result of noneffective division of leasing contracts [2]. Those leasing companies that practice specialized approach to running their businesses are greatly risky in contrast to the firms that promoted themselves as universal ones. It is connected, for example, with work of a lessor in one branch of economic activity or one region with definite type of assets or specific class of clients.

For estimation of portfolio risks it is required to imlement portfolio diversification mechanisms of leasing contracts. Companies-lessors are specialized on the deals of the fixed assets transfers to the specific branch of economic activity, on the specific type of such assets or according to the regional allocation.

For branch specialization diversification and reduction of risks arising it is necessary to analyze in details present-day situation and development dynamics of this or that industry. Leasing companies transfering in leasing, for example, agricultural machinery, auto transport, computer equipment to the firms occupying in the sphere of agricultural industry are run risks of lessee insolvency as a result of failure of crops or seasonal fluctuations of demand for production. For this it is necessary to learn the figures of of the production cycle, the state of the fixed assets, presence of monopolists and big investors, also competitors-lessors, level of influence and interests of the country in this field. JSC NSC “Ukragroleasing” can be an example of such large leasing companies in Ukraine, which deliver to the farming enterprises not only equipment of special agricultural purpose such as grain harvester machines, tractors, spray machines, ploughs and seeding machines, but also for servicing of administrative managarial staff such as computer equipment, cars and others.

Deversification of leasing companies specialized on the specific type of fixed assets is required because of dependence of such property transfering in leasing upon the state policy, taxation system, demand fluctuations and others. The most popular fixed assets of Ukrainian companies-lessors are cars and cargo-carrying vehicles as the most liquid items easily selling on the secondary market [3]. But protectionism of the state that took place in 2005 in the automobile industry brought to sudden leap of customs on the imported vehicles that resulted in lessors’ activities specialized on leasing of the transport of foreign production.

Concentration of leasing companies on one region (segment) according to the place of their location leads to the necessity of regional specialization diversification. Such diversification can result in the unsteady state of the company as a consequence of the advent of powerful competitor, change of the policy of local authorities, limited range of clients-lessees in the borders of the region. Acoording to the data of the State Statistics Department leasing companies concentrated in the center of the most industrially attractive regions of Ukraine. On the market of leasing services in Kiev 68% of all leasing companies in Ukraine are functioning, in Odessa – 8%, in Zaporozie and Lvov – 6%, in Donetsk – 4%, in Dnepropetrovsk – 2%, other regions – 6% [3].

Based on the mentioned above it is followed that risks which appear to be generated during specific leasing agreement realization can not be examined individually. Before signing the next leasing contract, leasing company is to analyze its influence on the change of profitability and level of the impact of investment risks on the total summarized size of leasing portfolio. For reducing the grade of portfolio risk influence leasing companies are required to use the mechanism of diversification of the branch specialization, specialization on the specific type of fixed assets and regional specialization.

 

Bibliography

1.           Doropheeva O. Innovations in Risk Management of Leasing Activity Financing // Scientific Bulletin of the Bukovinsky State Financial Economic Institute: Scientific Thesis 4: Economic Sciences. – Chernovtzy, 2003. – P.137 – 138.

2.           Khobta V., Gayduck V. Problems And Perspectives of Leasing Development in Ukraine. - Donetsk: IEL NAN Ukraine, 2000. – 118 p.

3.           Express Results of Leasing Market Research in Ukraine 2004-2005. Sociological Research // Information Analytical Journal “Leasing in Ukraine. – 2006. – ¹4. – P. 1-5.