Bulgarian Leasing Market Developments and Prospects A presentation by Teodor Marinov, Co-chairman of Bulgarian Association for Leasing

Historic background – stages, milestones Until 1989 - the Bulgarleasing era 1990 - 1992 - start of transition to free market economy, establishment of the first private leasing companies 1993 - 1995 - small car leasing companies gather momentum 1996 - banking sector crisis, lack of refinancing and numerous bankruptcies 1997 - 2000 - first international players enter the market 2001 - rapid expansion phase starts 2002 - two leasing associations established 2003 - mass penetration by international banking groups starts 2005 - BNB commenced collecting and publishing leasing statistics 2006 - BAL established upon merger of the two leasing associations 2007 - Entry into the EU

Measuring market growth - specifics BNB data available from 2005 Changes in sample New business measured by financed amounts BAL data: Principles of surveys Sample The combined approach: BNB data used for outstanding BAL data used for volumes

Leasing market size, determined by outstanding net lease receivables at the end of the period (in EUR mln) Source: 2001 – 2004 - BAL data 2005 – 2007 - BNB data, for 2005 and 2006 historic figures used

Leasing market size, determined by value of new business (in EUR mln) Source: BAL

“New business” financial leasing Asset type Machinery and Industrial Equipment Computers and Business Machines Transport Vehicles Cars Real Estate Other Total Value (EUR mln) 345 9 372 425 99 41 1293 % 26.72% 0.72% 28.79% 32.89% 7.68% 3.20% 100% Source: BAL data

Share of machinery and industrial equipment in the part ”new business” - international comparison Source: Data from market survey of Leaseurope for 2006

“New business” operating leasing Asset type Machinery and Industrial Equipment Computers and Business Machines Transport Vehicles Cars Real Estate Other Total Value (EUR mln) 0.92 0.02 6.85 10.26 18.05 % 5.08% 0.11% 37.97% 56.84% 0% 100% Source: BAL data

BULGARIA Leasing penetration ratio Source: BAL for New bisuness, NSI for Investments

Ratio of leasing penetration- international comparison Sources: Data from market survey of Leaseurope for 2006, country statistics

BULGARIA Ratio of net lease receivables to GDP Source: BAL for New bisuness, NSI for GDP

Ratio of net lease receivables to GDP International comparison Sources: Data from market survey of Leaseurope for 2006

Legal Framework for leasing No special leasing law. Main laws defining leasing activity are: Commercial Code, Law on Contracts, Accounting Law Leasing companies are not protected by Law from supplier default No restrictions on tenor, type of asset and amount Contracts are registered with Central Pledge Registry. Registration is a base for issuance of repossession writ of execution through out-of-court procedure. There is mixed experience in using of this procedure A certain practice among lessors is the notary endorsement of lease contracts. Such endorsement is used for obtaining of writ of execution for collection of the overdue amounts under out-of-court procedure. Unfortunately, experience in applying of such procedure is mixed While overall legal framework is adequate, there is much room for improvement in implementation

ACCOUNTING AND TAX ADVANTAGES OF FINANCIAL LEASES NONE

Accounting and profit taxation for leasing Taxation of financial and operating leases is based on accounting profits Companies may choose reporting standard between National Accounting Standards (NAS) and IFRS NAS converge towards IFRS (economic treatment of leasing transactions)

VAT taxation for leasing in Bulgaria Bulgaria introduced VAT in 1994 VAT Law changed dramatically in 2007, reflecting EC’s 6th directive The General rate of 20% applies to capital payments under financial leases and rentals under operating leases Lessor may choose whether to charge VAT on interest; Right to VAT refund to lessees is allowed under the same criteria as if they were to acquire the asset There is special VAT refund regime for cars, depending on number of seats VAT is due upon delivery (close-end leases) or at installment (open-end leases) VAT refund period grew substantially upon EU accession

Bulgarian leasing market: Challenges ahead Macroeconomic impacts Country risk and cost of funds – implication of the sub-prime lending crisis Liquidity impact – limited on banking groups, stronger on captives and severe on independents Eligibility for EU funded projects: Regional Competitiveness and Employment Program for development of the rural areas BASEL II – impact at Group level, implications on re-financing Maturing (?)

Country risk - measurement Source: Reuteurs

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