RESHAPING OF EMERGING MARKETS

What does it imply for leasing industries in Turkey and other emerging economies

Cüneyt AkpınarEFG Leasing

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Changing dynamics of the emerging markets & the potential for their leasing industries

Special Reference: Turkish Leasing Industry

2

3

Exports

GDP

Oil Demand

FX Reserves

Land Mass

Population

0 10 20 30 40 50 60 70 80 90 100

Shifting Balances

*Emerging Economies as % of total World, 2010; Source: IMF

Emerging Economies

Advanced Economies

4

EM: Strong Human CapitalPa

kist

an

Saud

i Ara

bia

Egy

pt

Mal

aysi

a

Indi

a

Vie

tnam

Mex

ico

Tur

key

Indo

nesi

a

Arg

entin

a

Bra

zil

Chi

le

Tha

iland US

Chi

na UK

Fran

ce

Sout

h A

fric

a

Kor

ea

Ger

man

y

Pola

nd

Cze

ch R

ep

Japa

n

Rus

sia

-40%

-20%

0%

20%

40%

60%

80%

100%

Emerging Advanced

Projected Growth of Working Age Population (Ages 10-65), 2005-2030

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They are growing faster than the advanced economies

GDP Growth

Advanced Economies

Emerging Economies

2010 2011 2012

3.0 2.4 2.6

7.3 6.5 7.0

Source: IMF

Contribution to Global Growth

Emerging EconomiesAdvanced Economies

Source: HSBC

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Source: Goldman Sachs, PriceWaterHouseCoopers

By 2050…

E7 countries, to outperform growth in US, EU, G7 and OECD.

E7 to attract the highest levels of capital inflow and substantial increase in trade volumes.

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*US$ bn at constant 2006 prices

2006 20500

20000

40000

60000

80000

100000

120000

E7 G7

Relative Size of G7 and E7 Economies

They invest heavily in sectors where leasing industry is the most

active

Energy Infrastructure

Transportation

Telecommunications

Health

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…but their access to financial servicesremains severely

constrained

Share of SMEs in GDP growth &

employment is very high…

0

10

20

30

40

50

60

70

DevelopingAdvanced

Share of Formal SMEs in Formal Manufacturing Employment

Share of Formal SMEs in GDP

05

101520253035404550 Developing

Advanced

Share of Informal SMEs in Labor Force & GDP, %

Share of Informal SMEs in Labor Force

Share of Informal SMEs in GDP

Share of Formal SMEs in Formal Manufacturing Employment & GDP, %

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Key Take Away: Emerging Markets will provide significant growth prospect for their leasing

industries…

Larger and relatively stronger

Offering significant growth potential

Under-capitalized

Under-leveraged

Providing compelling sector/company-specific stories

Under-valued

Under-penetrated

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…& significant value-added for global players

Margins are higher

Returns are stronger

Strong M&A activity as well as privatizations and greenfiled investments

Scope for know-how transfer and value add

Penetration levels are low

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Bottlenecks in legislative framework ?

Unregistered economy ?

Cross-border funding?

Liquidity ?

Instable financial markets ?

…& ..but “High Return” comes with “High Risk”

Corruption ?

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Special Reference: Turkish Leasing Industry

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What can Turkey offer different from other Emerging Markets

…at the crossroads between East & West, overlapping Europe & Asia geographically

…occupies an area approximately equivalent to the quarter of the size of the EU

…strategically located on critical energy corridors

…is the leading investor in Caucasian and Central Asian Turkic Republics

Unique Geographical Location…

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Consecutive High Growth RatesUS$bn %

1970US$ 13 bn

2000US$ 200 bn

2011US$ 776 bn

GDP

Fast growing

economy

Source: TURKSTAT

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-14

-12

-10

-8

-6

-4

-2

0

-11.9 -11.5

-8.8

-5.2

-1.1 -0.6-1.6 -1.8

-5.5-3.6

-1.3

Net Public Debt / GDP %

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

10

20

30

40

50

60

70 66.361.5

55.249.1

41.734.0

29.5 28.232.5 28.7

Declining Budget Deficit

& Net Public Debt

Budget Balance / GDP %

Source: TURKSTAT

Source: TURKSTAT

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Increasing Trade Volumes

1970US$ 1.5 bn

2000US$ 81 bn

2011US$ 382 bn

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Stronger FDI flows

over US$20bn per year

in 2005-2008

compared to only

less than US$1bn historically

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Promising for Higher Growth Rates due to Low Penetration Levels

Car ownership per ‘000

Automotive

Loans + Deposits / GDP, %

Finance

Per capita consumption (toe)

Energy

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Penetration level in the leasing industry is low even compared to

other emerging economies

Ukraine

Turkey

Russia

Romania

Serbia

Czech.

Slovakia

Latvia

Poland

Hungary

Bulgaria

Slovenia

Estonia

0.26%

0.31%

0.72%

0.98%

1.14%

1.31%

1.37%

1.39%

1.63%

1.79%

2.00%

2.59%

2.95%

Source: London Financial Group and White Clarke Group - 201120

Financial Leasing can be applied in the form of domestic lease, cross - border lease. Currently No

operational leasing.

Main medium-long term equipment financing instrument, especially for SME’s.

31 companies of which 26 are member of the association.

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

4 Participation 11 Investment Banks

Contracts : Almost all full payout - mostly fixed interest rate

Average term: 3 years

Average growth rate: 35% in real terms.

2011 grovth 55% in US$ terms.

Turkish Leasing Industry in a Nutshell

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Tax base leasing. All rentals are corporate tax

deductable. Investment Incentive (up to 100% tax allowance may be

reflected to lessee in pricing). 1% VAT against general VAT

(over years 11% - 15% - 18%).

IFRS tax accounting. No more tax base leasing.

Investment Incentive Certificate and VAT

advantageous continued.

Investment Incentive Certificate, corporate tax

allowances application ended gradually (finished by end

2008)

VAT advantage of 1% against 8% or 18% continued.

No any special tax incentive or advantageous in leasing

sector.

1% VAT against general

VAT (18%)

6,712 19,373 28,58124,250 37,239 42,963 19,87851,519 6,197 10,186 11,195

1st Phase 2nd Phase 3rd Phase 4th Phase 5th Phase

Sharp decline due to tax changes coupled with global financial

turmoilStrong growth rates:CAGR: 50.23%

Another growth phase

Strong Growth Rates of the Past are expected to Return with New Legislation and Tax Reform

Dec 2007-Jan 2012June 1985 – June 2003 July 2003 – Dec 2005 Jan 2006 – Dec 2007 current

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Draft Leasing Law

What will Change?

Operating Lease

Sale and Lease Back

Sub Leasing

Software Leasing

============================================= Supporting Changes

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

No time restriction

The voluntary-based Leasing Association will become obligatory, covering all lessors and strengthening its status.

Registration of lease contract with the Association will be less bureaucratic compared to the current Notary Public application

Higher volumes

New Products

Less Bureaucracy

More Efficiency

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Future Prospects : Happily Ever After?

Penetration levels to increase

New financial products their growth in volumes.

Improved margins

Asset management and risk management will be crucial

Technology investments to create competitive advantages

Brokership will increase

Learning organizations will be formed

Specialization/Value Creation/ Innovation will differentiate the lessors. Benchmarking will be key.

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Further questionscakpinar@efgleasing.com

Thank you…

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