RIGA - The number of equipment leasing transactions in Latvia's industrial leasing market is increasing, while commercial transport leasing company customers are sitting on the sidelines, says Nordea Finance Latvia board chairman Ivars Smits.
Overall, he says that the number of transactions in commercial transport and equipment leasing is down by 23 percent year-on-year for the first half of 2008. There has been stabilization in the rate of equipment leasing transactions, however, after steep drops in December 2007 and January 2008, says Smits. "In February the equipment leasing market started to get active again and has kept going until now," he said.
"The data shows that businesses continue investing in new production equipment in the industries where a clear economic advantage is seen, such as in road construction, the extraction industry, steelworks. This is a positive trend in the overall context of the Latvian economic situation. It shows that businesses are assessing the economic situation in the long term and, despite the current decline in the economy, they continue developing their production, which is the basis of our economic stabilization and growth," Smits said.
He added that customers in the commercial transport leasing sector have been reluctant to move and that the number of new leasing transactions in the commercial transport sector has been declining 10 percent monthly since February.
"The figures show the difficult situation in the transport industry, which has been negatively affected by rising costs. The commercial transport companies are trying to use the equipment already at their disposal. Payment schedules were revised for some commercial transport leasing customers. Their repayment deadlines were postponed, thus enabling the businesses to struggle through the difficult market situation," Smits said.
These trends reflect Latvian Hansabanka's efforts and its latest forecast in which it expects to write off approximately 0.6 - 0.7 percent of its loan portfolio in 2008, with a loss for 2009 expected to be about 1.2 percent, says board chairman Maris Avotins.
"Currently the amount of losses corresponds to plans. The average annual reserve for bad debts could be the highest for the banking sector next year. The rate of economic decline is faster than estimated half a year ago, which changes the long-term estimates. On the other hand, the faster the economic slowdown, the stronger the stimulus to restructure," he said.
Avotins said that the bank does not expect to see a steep increase in defaulting payments among individuals. "Usually individuals are much safer borrowers; we also observe that the average remuneration in the economy has increased," he said.
There are always companies that expect everything will be in order if they take no action, he warns. However, now "is the time for active work. The ones who don't actively think of optimizing their business will have difficulties in 6-12 months. The companies must understand that the business environment has changed," Avotins stresses.
In his opinion, the strongest companies will emerge from the current economic situation even stronger and the ones that are not fast or daring enough, the ones that do not understand that times have changed, will have problems.
"I believe that currently no negative events have happened for the businesses. It should be understood that to make a profit, productivity must be raised. For example, timber processing was the industry where two years ago it was clear how the situation would develop. Although the world market has declined considerably, Latvian timber industry exports have not followed the [downward] trend, as several companies, observing the situation, took daring decisions and made large investments," he said.
