Turkish Leasing Market: Latest Developments

and
Prospects

Bülent Tasar
Chairman – Turkish Leasing Association (FIDER)
Managing Director - Siemens Finansal Kiralama A.S. - Turkey

Turkish Leasing Market:

Latest Developments and Prospects
2-3 April, 2009
Istanbul-Turkey
 April, 2009

SIEMENS FINANCIAL SERVICES AT A GLANCE

„ Siemens Financial Services (SFS): FY 2008 FY 2007 FY 2006 FY 2005

A Siemens Group
Total assets
11,328 8,912 10,522 10,148
„ Nearly 1,900 employees
„ International network of affiliates Pretax profit
286 329 307 319
coordinated by Employees
1,933 1,783 1,764 1,672
Siemens Financial Services GmbH, worldwide
Munich
„ SFS – a provider of financial solutions
- Combination of international financial expertise and
comprehensive technology and industrial know-how
- Financial solutions uniquely targeted to the requirements of its customers
„ SFS is a niche player in target markets: sales and investment financing, treasury services, fund management,
insurance solutions

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 April, 2009

MAIN ECONOMICAL INDICATORS

TURKEY
MAIN ECONOMIC INDICATORS

2001 2002 2003 2004 2005 2006 2007 2008

GNP (Million US$) 145,700 180,900 239,200 299,500 361,400 399,673 658,700 748,000

GNP Growth % -9,5 7,9 5,9 9,9 7,6 6,0 4,5 1,5

Per Capita GNP $ 2,123 2,598 3,383 4,172 5,008 5,477 9,333 10,733

Population (Million) 68,6 69,7 70,9 71,5 72,0 73,4 70,5 71,5

Inflation Rate (CPI) % 54,4 45,0 25,3 10,6 8,2 9,7 8,4 10,1

Inflation Rate (WPI) % 61,6 50,1 25,6 11,1 5,9 11,6 5,9 8,1

Exports (Million US$) 31,334 36,059 47,253 63,167 73,476 85,478 107,200 132,003

Imports (Million US$) 41,399 51,553 69,340 97.540 116,774 138,290 170,100 201,823

Source: Turkish Statistical Institute

(*) Central Bank of the Republic of Turkey
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 April, 2009

LEASING STATISTICS

Distribution of Domestic Leasing according to asset type

New Equipment cost in USD million
Equipment 2001 2002 2003 2004 2005 2006 2007 2008

Vehicles 72,6 195,4 334,5 420,1 524,9 641,1 866,1 485,8

Air transportation vehicles 1,4 6 0 5,2 25,8 11,3 96,8 98,5
Marine vehicles 1,3 17 6,8 5,7 7 24,4 138,4 113,8
Construction Machinery 72,1 99,6 201,7 446 986 1363,8 1931,1 1081,3
Manufacturing machinery and equipment 156,8 278,5 547,9 781,6 1175 1416 1921,9 1433,8
Medical equipment 28,8 42,7 100,3 122,1 197,1 245,9 368,6 367,9
Textile machinery 87,8 310,8 413,3 371,2 351,9 355 651,3 136,5
Tourism equipment 16 36 42,9 42,4 59,6 96,4 195,7 180,8
Electronic and optical equipment 29,7 50,3 75,9 144,4 150,4 191,1 298,9 146,1
Printing equipment 24,6 38,3 56,5 104,9 134,9 152,2 230,1 289,9
Office equipment and computers 126,4 137,8 185,3 209,1 263 317 465,1 584,1
Real estate 66,6 68,7 144,1 196,9 343,9 384,6 919,5 80,2
Others 46,9 46,1 55,6 70,7 42,6 71,2 119,8 24,6

Total 731 1327,2 2164,8 2920,3 4262,1 5270.0 8203,3 5301,5

Number of Contracts 6.712 19.383 24.233 28.615 37.278 42.963 51.519 19,878

Equipment Penetration % 4,25 6,72 7,72 6,8 7,64 7,70 7,70 7,0

Source: FIDER

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 April, 2009

LEASING STATISTICS

Leasing in Turkey by Asset Type ( 2008)

Office equipment and

computers ; 6%
Vehicles; 9% Others; 2% Real estate ; 8%
Printing equipment ; 3%
Air transportation vehicles;
2%
Electronic and optical
equipment ; 3%

Marine vehicles; 2%

Tourism equipment; 3%

Textile equipment; 6%
Construction machinery;
20%
Manufacturing machinery
and equipment; 26% Medical equipment; 7%

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 April, 2009

ABOUT LEASING ASSOCIATION (FIDER)

• Roots in 1989 with four companies namely Lease Club.

FIDER officially established in 1994. Today 36 members which creates appx. 90% of the lease volume (dominated by
first 15 companies, mostly bank subsidiaries).

• Own ethical codes signed by all members.

• Very active committees such as legal, accounting and tax etc. to be pro-active.

• Well acceptance and good relations by the government authorities as well as international institutions like World Bank,
IFC,Leaseurope Leasing Associations.

• Experienced professional staff.

• Carries a well established library for the leasing studies or any other inquiries (for internal and external demand).

• Arrange extensive local and international training programs.

• Arrange promotional and motivational social activities in the sector.

• More info can be taken from Web site www.fider.org.tr

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 April, 2009

SECTOR SUMMARIES

• 74 registered companies (including 10 investment banks, 4 Participation Banks/ Islamic Banks and 3 Captives)
Presently around 40 active players.

• First 15 players dominate the market (mainly bank subsidiaries).

• Contracts 95% full payout and average term is around three years.

• In general fixed interest rate.

• Low bad debt around 1% end 2007 (uncollected amounts around 6%). Increased to 3% in 2008 and still goes up.

• Appx. 7% (average last 5 years) of total private fixed capital investments.

• Cross border leases to Turkey only for high-tech.

• Average growth rate is around 40% in real terms although in some crisis years negative growth. (in 2007 38%).
Unfortunately in 2008, 35% decrease because of VAT Law changes and worldwide economical unstability.

• Still one of the prior medium-long term equipment financing instrument, especially for SME’s.

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 April, 2009

LEGISLATIVE FRAMEWORK (I)

• Leasing Law (No: 3226) governs only Financial Lease.

• New Tax Law (No: 4842) allows Operating Lease but harmonization between these two laws are still needed.

• Uncancellable period is four years (some exceptions such as cars, computers, photocopiers, construction
machineries, buses, trucks, medical equipments, aircraft and vessels for two years).

• Lessor change is permitted.

• Sub Leasing is not allowed.

• Movables and immovables can be leased (except industrial rights such as patent rights, software etc).

• Lease rentals can be fixed or floating and can be in TL and/or FX.

• Lessor is the legal owner of the asset.

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 April, 2009

LEGISLATIVE FRAMEWORK (II)

• Leasing sector is governed Banking Regulation and Supervision Agency (BRSA) since January, 2006.

• Contracts should be registered with notary public to secure the ownership rights of Lessor.

• Lessor is obliged to take out insurance, Lessee should pay the insurance premium.

• In case of default 30 or 60 days’ grace.

• Total book value of the leased assets can not exceed 30 times of the shareholders’ equity.

• Minimum capital requirement is TL 5 million (appx. USD 3 mio.).

• Cross Border Leasing contracts should be registered with the BRSA.

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 April, 2009

ACCOUNTING AND TAXATION (STILL ON)

• IFRS since 2007 for all enterprises.

• VAT 18% (8% in trucks and commercial vehicles, medical equipments some industrial machineries and
construction machineries). VAT has been increased from 1% to 8% and 18% since January 2008.

• 0.5% witholding tax on Cross-border rental payments.

• No stamp duty or any tax on the lease contracts. Only small fix cost for notary public .

• Corporation tax 20% (decreased from 30%).

• Investment Incentives for special sectors and/or regions with 0% VAT allowance.

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 April, 2009

DRAFT NEW LEASING LAW

• Operating Leasing.

• Sale and Lease Back.

• Sub Leasing.

• Software Leasing.

• Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud).

• Association to cover all leasing companies (obligatory).

• Registration of lease contract with Association meaning less bureaucracy than ex Notary Public application (but may
be less legal strength).

• General and specific provision guidlines (similar to banks).

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 April, 2009

TURKEY’S GENERAL POSITION DURING AND AFTER

THE CRISIS
(+) • No subprime mortgage credit in Turkish finance sector.
• Rating of the credits are prudent.
• There is no bank ≤ 12% primary capital ratio.
• Transparency is very high comparing the other countries. Thank to BRSA.
• Acceptable level of risk for repayment or roll the existing loans in the finance sector.
• Political stability.

(-) Although many positive and strong position in the market there are and expected some negative developments;
(i.e. No direct effect but expected indirect effects).

• Liquidity problem because of credit crunch. Higher spreads, shorter maturities.

• Problem in reel sector with USD 75 bio. FX debt(open position risk as well).
Presently current account deficit is 3% of GDP, amounting appx. USD 41 bio. end 2008. Increase in oil and
energy prices might worsen the deficit(presently no problem).
• Decrease in portfolio quality, collection and default problems.
• GDP plans È, inflation plans Æ, FDI’s È

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 April, 2009

TURKISH LEASING SECTOR BEFORE - DURING AND AFTER CRISIS

Turkish Leasing Sector Before Crisis Turkish Leasing Sector During and After Crisis

• Financial Sector consolidated (mainly banks and consequently leasing • New consolidation in finance sector including leasing. Some foreign
and factoring companies). investors might leave the country.

• FDI in financial and insurance sector. • More captive lessors to come to market (Volvo, Man, Hitachi/Enka,
Caterpillar recently came).
• Partnership ≤ 50% (AK-Citi, TEB-Paribas, Garanti-GE).
• Partnership > 50% (Dis-Fortis, Finans-NBG, Deniz-
Dexia,Abank-Alpha).

• Country rating still low but improved from B stagnant to BBpositive. • Country rating l came down to BB neutral from BB positive i.e. CDS
increased meaning expensive borrowing.

• Rapid margins decreases. Severe competition. Returns do not justify the • Competition edge is on long term funding. Spread seems second priority.
customers risk rating. In shorter terms (up to 1 year) severe competition comes from the Banks.

• There is a demand for small ticket. Considerable Flow Business and • Small-mid ticket vendor programs almost zero.No demand.
Renting potential .

• New Leasing law draft is under consideration and sent to State Ministry • New Leasing law Draft is under consideration and sent to Prime Ministry
from BRSA (Organizational issues have been circulated in January, 2007). from Satate Minsitry.
New Mortgage Law has been introduced, leasing companies can finance New Mortgage Law has been introduced, leasing companies can finance
houses via Mortgage for individuals. houses via Mortgage for individuals.

• Low bad debt. • Collection becomes problem. Higher bad debt.

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 April, 2009

PROSPECTS

• Improve margin via taking asset/RV risks (operating leasing,techfresh etc.).

• Asset Management and Risk Management will be crucial (Basel II to be applied within 3 years) (2008 postponed).

• We might see bigger deals via syndication.

• New financial openings like operating leasing, sale and leaseback, sub leasing, software leasing will increase the
growth rate and penetration.

• Learning organizations (Dynamic and ongoing trainings).

• Technology investments (IT,software).

• Brokership will increase.

• Longer term funding /Specialization/Value Creation/ Innovation will differentiate the lessors.

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 April, 2009

THE MOST POWERFUL SECTORS OF TURKEY

World’s 2nd largest manufacturer of flat glass

World’s 6th largest producer of cement and cotton
One of the world’s 5 largest jewellery manufacturer
The biggest textile manufacturer in Europe
The biggest TV manufacturer in Europe
The biggest fertilizer manufacturer in Europe
6th largest manufacturer of refrigerators in Europe
7th largest iron and steel manufacturer in Europe

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 ‘’TURKEY WELCOMES YOU’’

Thank you for your attention.

Siemens Finansal Kiralama A.S.
BÜLENT TASAR
Managing Director
Meclisi Mebusan Cad. No:45
34427 Findikli / Istanbul
Tel : +90 (0 212) 251 02 07/08
Tel (Direct) +90 (0 212) 252 92 09
Fax : +90 (0 212) 293 35 30
e-mail: bulent.tasar@siemens.com

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