Issues Facing the Leasing Industry – Foreign Perspective

1. Issues Facing the Leasing Industry – Foreign Perspective Uzbek Leasing Conference Tashkent, 5th April 2012

2. Outline • Sharing the Malaysian experience • Consolidation of the Financial Services Sector • Should Uzbekistan follow the same path?

3. Sharing the Malaysian Experience • Industry overview • Effects of the consolidation on the financial services industry on leasing • Current issues facing the industry

4. The Industry Overview • Size of the industry • Contribution of the industry

5. Industry Overview – contd. • Range of leasing products • Finance lease • Operating lease • Sale & leaseback • Syariah-compliant leases – Ijarah • The Players 25 (bank-backed & non-bank packed)

6. Industry Overview – contd. • Number of employees – 11,100 • Total shareholders : RM11 billion (Puc – RM3.6b, Gen.Res. RM4.4b, Unap.Profit RM3b) • No. of contracts: 25% are leases (17,000) 75% are IHP (60,000) • Volume of receivables: 17% are leases -RM1.1b 83% are IHPs - RM6.4b • Profit before tax – RM1.5 billion

7. Sector Coverage • Manufacturing - 25% • General Commerce - 24% • Services - 13% • Transport - 12% • Property - 12%

8. Effects of Finance Industry Consolidation • Pre-consolidation • Rationale of consolidation • Benefits of rationalisation • Some of the drawbacks of rationalisation e.g. development of the SMEs

9. Issues Facing the Industry Results of 2010 survey: • Competition • High cost of funding • Pricing • Delinquency • Frauds – multiple financing • Taxation • Staff turnover • Residual Values

10. Issues Facing the Industry Elaboration on the main issue of addressing the competition • Within the industry • Outside the industry

11. Addressing Competition • Merge into the bank • Targeting a niche • Understanding the risk profile and risk rewards of the target niche • Innovative products • Strenghten collection • Instill a strong performance-driven culture

12. Innovations in the industry • Due to limited tax benefits - not much innovations • IHP gaining popularity over leases due to incentive of reinvestment allowance • Operating leases still not largely popular • Islamic/ Syariah-compliant leases

13. Should Uzbekistan follow the same path? • There must be alignment with the country’s priorities and agenda for national development • Learning from the lessons of other countries at different stages of development

14. Creating a Performance-Driven Culture • Requires a transformation approach • The approach must be holistic, addressing all elements • The elements of a performance-driven organisation • Implementation issues & challenges

15. Elements of a Performance-Driven Culture • Clarity of Vision & its understanding across the whole organisation • Understanding the enablers to achieve the mission • Measurable Performance Measures (KPIs) • Stringent Performance Management • Performance & remuneration must be aligned and seen to be aligned

16. Conclusion • There is future in leasing • The pace & form of the financial industry rationalisation must be aligned to Uzbekistan’s national development agenda • Creating a strong performance-driven culture is key to being competitive • The transformation requires a holistic and disciplined approach

17. Thank You

18. Accompanying Text of Speech • Opening Speech • Good afternoon Ladies & Gentlemen. • First of all, I would like to thank the Association of Uzbekistan Lessors and personally MrZafarMustafaev for inviting me to speak at this conference. • I am indeed honoured to attend this session together with esteemed representatives from the Parliament of Uzbekistan, Central Bank of Uzbekistan and Ministry of Finance, as well as with the Chairman of Turkish Leasing Association.

19. Outline • Ladies and Gentlemen, let me now proceed with my presentation. • With the permission of the Chairman, I would like to make a slight change on my paper, and focus more on sharing the Malaysian experience in coping with the challenges facing the industry. • Some of these challenges you are yet to face, but I am certain that in the very immediate future you will, and I hope sharing our experience will allow you to ponder how you would want to face them, and generally whether the Uzbekistan financial services industry want or should follow the same path.

20. The Industry Overview • The leasing industry was a thriving industry in Malaysia before the consolidation of the financial services industry that took place after the Asian Financial Crisis in 1997. • The consolidation was prompted by the need to have stronger and more resilient financial institutions who could compete better with global competition. As you know, globalisation was the driving after the Crisis. • The consolidation was also prompted by the need of the Regulators to have more control and discipline over all the players of the key segments of the industry. • This resulted in the merger of the more than 22 local banks then into now less than ten banking groups. • This was further followed in mid 2000s with a second round of consolidation that saw the merger of the various finance, equipment leasing and factoring companies into the parent banks – the start of universal banking in Malaysia where everything is done under 1 roof.

21. Issues facing the industry • Let me share with you the results of a survey taken in 2010 of the more than 25 leasing companies in Malaysia, on what they see are the major challenges. • (Summarise the Challenges)