September 2019

Predictions on the leasing industry’s 2019 end of year results

The leasing industry has accustomed us to a year-to-year increases – during the last 25 years the average annual dynamics of the Polish leasing industry has amounted to an increase of (+)19%. (Source: Polish Leasing Association). Is there a significant risk, that after so many years of growth and a continuous increasing of its share in financing assets, that the leasing sector is facing weakening results?

Evaluation of the first half-year results, presented by the Polish Leasing Association, does not offer a definitive picture for 2019’s end of year results. On the one hand, the value of contracts covering January – June 2019 amounted to 36,03 billion EUR and was 15% higher compared to the same period in 2018. On the other hand, the value of newly signed contracts, in the afore-mentioned period, recorded a slight decrease (0,6%), which resulted in the financing of new contracts at the level of 8,88 billion EUR. It might be explained by a significant change in the regulatory environment which went into effect at the end of 2018 concerning an income tax on passenger cars, which undoubtedly accelerated entrepreneurs’ car-buying decisions.  This change is visible in the following charts, which exemplify the H1 2019 change vs H1 2018 one, in terms of the volume of light vehicles financed (up to 3,5 tonnes).

Chart 1: Financing of light vehicles in billions (EUR)

Source: Polish Leasing Association 

Considering that all remaining leasing market’s segments (heavy transportation, machines, appliances, real assets) enjoyed positive results in terms of dynamics change’s assessment vs 2018, it can be assumed, that the previously mentioned regulatory environment had a significant impact on the leasing branch’s results. Simultaneously, market tendencies in the way vehicles are being used are changing (especially passenger cars). Additionally, trends of usage are moving towards leasing over ownership, and it may turn out that ultimately the same results will be achieved as at the end of 2018. However, in anticipation of the final results on 31 December 2019, we can consider an easy statistical and analytical exercise. As a model, it will help to estimate the leasing industry’s results for the end of 2019 (with the right assumptions), taking into account the car financing decline in H1 2019.

Assumptions made in the model:

  1. For the vehicles’ segment, the results in III and IV Q 2019 were estimated with the dynamics of change which occurred between I and II Q 2019. These will be compared to the value attained at the end of II Q 2019. (The dynamics of change attained in 2018 were deliberately not incorporated in the calculations. While these were assumed to have a positive impact on the regulatory environment, they were nonetheless of a stochastic character).
  2. The results of all remaining segments for III and IV Q 2019 were estimated with the dynamics of change attained in 2018 for the following periods: III Q 2018 vs II Q 2018 and IV Q 2018 vs III Q 2018.

For those assumptions, the following results were obtained:

Chart 2: Financing of vehicles – forecast of results at the end of III and IV Q 2019

Source: Author’s Own Research

Adopting the assumptions above, it seems that by the end of 2019, the value of vehicles financed with leasing will slightly increase (1,5%) compared to the result achieved at the end of 2018. Such a result may be explained with the assumption that the value forecast for the III and IV Q 2019 does not take into account the recorded decrease in financing the value of vehicles between II and III Q 2018, which is presented in the chart below.

Chart 3: Financing of light vehicles in billions (EUR) in individual quarters of 2018 and forecast for Q3 and Q4 2019

Source: Author’s Own Research

This approach assumes a constantly growing demand for vehicle purchases and financing them by leasing, regardless of the holiday period of III Q. The final market value for this period will be verifiable in October after the data of the leasing industry results of PLA are published.

Finally, we present a simulation of the results for the entire industry, which was created after the model calculation took into account the assumptions described above.

Chart 4: Forecast of the leasing industry’s results in 2019

Source: Author’s Own Research

The forecast of the leasing industry’s results leads one to presume that 2019 will end with a result akin to 2018 (an increase of 1,8%). Considering the significant growth of the industry’s results achieved between 2017 and 2018 (21,8%), a slight growth or maintaining of the same level, should assuage any concerns about the leasing industry’s vitality. However, a temporary “downtime” may affect the behavior of market participants in the leasing industry, including strengthening competition and seeking competitive advantages. These, in turn, are going to be looked at through the lens of digitalization, which the next blog will be devoted to.

Paweł Krasuski
LeaseTech - Executive Sales Director
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Julita Wiatrowska

Julita Wiatrowska

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