On the State of Development of the Leasing

Report

on the state of development of the leasing,

non-bank credit and factoring markets in theCzech Republic in the 1st -3rd quarters of 2011

Macro-economic framework

(higher demand for non-bank financial products due to mild economic growth)

This year, non-bank financial products have been offered in the conditions of limited economic recovery. This was reflected by a double-digit year-on-year growth of leasing, non-bank loans for entrepreneurs and factoring and by a continuing mild growth of non-bank consumer loans.

Up to date the GDP has been growing this year (in the 2nd quarter by 2.2 %, while the year-on-year growth rate slowed down in the remaining months). The industrial production also grew year-on-year, even though only insignificantly (e.g. by 3.5 % in August). There has been no significant growth of investment or household expenditures – retail sales grew, year-on-year, only by 2.3 % in August, and even dropped by 1.7 % in July). Long-term bank interest rates applied in re-financing of non-bank financial institutions (with possible impact on financial product prices) were slightly decreasing throughout this year. The development of inflation (reaching 1.8 % in September 2011) had no significant influence on the development of non-bank financial products. Unemployment, which particularly influences demand for and risks in consumer loans and consumer leasing, reached 8 % in September 2011. The percentage of non-repaid loans of households with banks and non-bank financial institutions increased from 5.18 % in December 2010 to 5.25 % in August 2011.

Financial deals of non-bank providers of leasing, loans and factoring up to date this year have been also influenced by the fact that many demands to finance investment or consumer projects were related to significant risks and could not be accepted upon applying cautious evaluation criteria on the customer and financed commodity. The results of non-bank financial market were also influenced by the fact that the leasing companies' offer was continuously extended by loan products.

Renewed boom of non-bank financial products contributes to economic growth

In quarters 1 to 3 of 2011, the CLFA member companies provided – by means of movable asset leasing, factoring, loans for consumers and entrepreneurs – a total of CZK 90.4 billion, i.e. by CZK 2.9 billion more than in the same period of the previous year. They provided CZK 64.4 billion to finance investment and operation of enterprises and CZK 26 billion to finance goods and services for households. Within this framework, they provided 39 billion to finance road vehicles (mostly new), of which 24 billion to purchase passenger cars. They financed 46,4 % of new passenger cars registered in CR in the period from January to September of this year. They also provided 13.7 billion to finance machinery and equipment. Thus, they significantly contributed to the development of our economy.

The CLFA member companies concluded 783,861 new leasing and loan trades in quarters 1 to 3 of this year. The number of newly concluded factoring deals is also significant. At the end of this period, the CLFA member companies were managing 2,485,622 active lease and loan contracts. At the end of the 3rd quarter of 2011, accounts receivable from running lease and loan trades reached CZK 223.6 billion.

Development of Leasing of Movable Assets in Quarters 1-3 of 2011

(double-digit year-on-year growth)

In quarters 1 to 3 of 2011, the CLFA member companies financed leasing of machinery, equipment and vehicles at a total purchase price (excl. of VAT) of CZK 32,1 billion. Compared to the same quarter of 2010, this is a year-on-year increase by 18,3 % in the biggest fifteen companies. Because the share of CLFA member companies in our movable leasing market is 97 % in the long run, it can be estimated that in quarters 1 to 3 of 2011 machinery, equipment and vehicles were financed in CR at more than CZK 33 billion. The total amount (initial debt) provided in quarters 1 to 3 of 2011 by the CLFA member companies to leasing of movable assets reached CZK 29,1 billion.

In quarters 1 to 3 of 2011, the share of operational leasing in the total leasing of machinery, equipment and vehicles reached 33,5 %. It is obvious that interest in operational leasing keeps growing (its share in total leasing reached 25.8 % in 2010).

In quarters 1 to 3 of 2011, leasing of road vehicles was still predominant. The share of passenger car leasing reached 28,4 % (compared to 25.5 % for the whole of 2010), the share of truck leasing reached 23.2 % (compared to 18.5 % for 2010). The percentage of new cars in the total passenger car leasing was 94.5 % in quarters 1 to 3 of 2011. The share of leasing of machinery and equipment, including photovoltaics, reached 33.1 % (compared to 30.9 % for the whole of 2010). Similarly to previous years, almost half of leasing of movable assets went to the private sector of services and over two fifths to industry and construction industry.

In quarters 1 to 3 of 2011, the CLFA member companies concluded 35,544 contracts on leasing of machinery, equipment and vehicles – of which 15,732 contracts on financial leasing and 19,812 contracts on operational leasing. The CLFA members newly took over 3,759 vehicles to fleet management. The number of newly concluded lease contracts increased by 8.2 % year on year.

Towards the end of the 3rd quarter of 2011, leasing of machinery, equipment and vehicles was running based on 249,542 active lease contracts concluded by the CLFA member companies (of which the number of active contracts on operational leasing was 63,757 and the number of contracts on fleet management was 5,778).

The accounting value of all leased machines, equipment and vehicles reached almost CZK 96.3 billion at the end of the 3rd quarter of 2011. Accounts receivable from concluded contracts on leasing of movable assets reached in total over CZK 99.8 billion at the end of September 2011.

Development of Business Credit and Sale on Instalment for Entrepreneurs in Quarters 1-3 of 2011

(use of these non-bank products keeps growing)

In quarters 1 to 3 of 2011, 29 CLFA member companies provided loans and other non-leasing financial products to entrepreneurs (financial service to end customers, without warehouse funding) in a total amount (initial debt) of CZK 20.83 billion. Compared to the same period of 2010, that was another year-on-year increase of the volume of loans provided to entrepreneurs by 12.5 % in the leading fifteen companies.

The biggest percentage of newly provided business loans (46.4 %) was to purchase passenger cars, businessmen also used a significant percentage of these loans (21.9 %) to finance machinery and equipment.

The CLFA member companies provided entrepreneurs with a total of 48,028 loans and instalment sales, of which 43 loans for real estate purchase. The number of loans provided to businessmen thus grew by 3.8 %, year-on-year. The average loan amount was CZK 433,802.

Accounts receivable from business loans and instalment sale for entrepreneurs concluded with the CLFA member companies amounted at the end of September 2011 to CZK 48.6 billion. At the end of September 2011, these companies administered 161,019 active loans and instalment sales for entrepreneurs.

Development of Non-bank Market of Consumer Credit in Quarters 1-3 of 2011

(continuing mild year-on-year growth)

In quarters 1 to 3 of 2011, compared to the same period of last year, the volume of funds provided by non-bank companies as consumer credit increased insignificantly. In this period, 22 CLFA member companies were providing consumer credit (including a number of leasing companies, which provide it additionally to lease products).

In quarters 1 to 3 of 2011, the CLFA member companies provided loans for personal need in total amounting to CZK 25 billion, which is (taking into account the results of GE Money Multiservis, a.s., from last year, whose business results are reported within GE Money Bank, a.s., this year) an actual year-on-year increase by 2.5 %. Compared to the 1st half of 2011, this is a decrease of total year-on-year growth rate of volume of new non-bank consumer loans.

In quarters 1 to 3 of 2011, consumer loans were provided by the CLFA members in the form of personal loans (CZK 7.97 billion – 31.9 % of the total volume of consumer loans), revolving credit (CZK 8.86 billion – 35.4 %) and point of sale funding (CZK 8.17 billion – 32.7 %). Compared to the same period of 2010, the percentage of personal loans grew (by 6 %), the same applies to the percentage of point of sale funding (by 3.6 %), while the percentage of revolving loans decreased significantly (by 9.6 %). Loans to finance passenger cars grew – their volume grew year-on-year by 2.9 % to CZK 5.7 billion, and their number by 1 % to 39,545 loans.

In quarters 1 to 3 of 2011, the CLFA member companies concluded a total of 696,528 contracts on consumer credit (262,534 personal loans – of which 58 personal loans for purchase of real estate, 150,775 revolving credits and 283,219 credit and instalment contracts within point of sale funding). There was a year-on-year decrease in the newly concluded contracts on consumer loans – by 7.8 %.

At the end of September 2011, the CLFA member companies administered accounts receivable from 2,074,836 running contracts on consumer credit at total amounting to CZK 65 billion.

Development of Factoring Market in Quarters 1-3 of 2011

(continued significant year-on-year growth in the use of factoring)

In quarters 1 to 3 of 2011, the volume of factoring trades continued growing, even though the growth rate slowed down compared to the 1st half of the year. In quarters 1 to 3 of 2011, members of the Association of Factoring Companies of CR (AFS CR) were assigned accounts receivable at a total of CZK 95.61 billion (of which CZK 78.97 billion to factoring companies which are also CLFA members). Compared to quarters 1 to 3 of 2010, this means an increase by 21 % in the AFS CR member companies.

In quarters 1 to 3 of 2011, regress factoring continued to be the leading product in the Czech factoring market (73.4 %); the share of non-regress factoring reached 26.6 %. The share of regress factoring decreased by 2.1 % year on year. In quarters 1 to 3 of 2011, the share of domestic factoring reached 73 %, the share of export factoring 23.8 %, the share of import factoring 3.2 %. The percentage of domestic factoring decreased year-on-year by 3.9 %. The volume of funds provided by the members of AFS CR to clients reached CZK 17.85 billion, as at September 30, 2011, of which CZK 15.35 billion by CLFA members.