Financial Leasing Supervision Radovan Jelašić – Governor of the National Bank of Serbia 26 January 2006

Legal framework May 2003 Law on Financial Leasing – defining financial leasing and basic rights and liabilities of participants in financial lease operations; July 2005 Amendments and Supplements to the Law on Financial Leasing – NBS – institution which issues licenses for the performance of financial lease operations, gives consent in respect of the appointment of management bodies, conducts supervision and undertakes corrective measures.

Definition of financial leasing vs. operational leasing Financial leasing is an arrangement where the lessor: –concludes a financial lease contract with the lessee whereby the authorities to keep and use the object of lease for an agreed period of time are transferred to the lessee in return for a series of regular agreed payments; – concludes a supply contract with the supplier whereby the lessor acquires the right of ownership over the object of lease; the supplier and object of lease are determined by the lessee (the main difference between financial and operational leasing); The owner of the object of lease is the lessor, whereas the contract may stipulate the right of the lessee to purchase the object of lease following the expiration of the lease period; The object of lease may be any movable non-consumer good; the financial lease contract may be concluded for a minimum period of 2 years.

Financial leasing vs. bank loans Financial leasing – financial service similar to bank loan (financing of the procurement of object, repayment in installments, interest, bookkeeping records, etc.); The most important features of financial leasing differentiating financial leasing from bank loan: –The lessor is the owner of the object of lease during the entire lease contract period; –Financing is approved for a specific object; –The lessor procures the object of lease, not the lessee; –The object of lease represents at the same time a collateral for collection, due to which lessors usually do not require additional collateral; –The lessor is fully protected in the event of the ruining or damaging of the object, failure to pay the leasing fee (return of the object of lease to the lessor’s tenure by a special procedure – 3+3 days), bankruptcy or liquidation of the lessee (right to separate recovery).

Number of financial lessors in Serbia Маy – Law on FL SOGELEASE Srbija (newly founded with the NBS license) 13 existing lessors harmonized their operations with the amendments to the Law on FL 2 new applications for the NBS license Јuly 2005 – Amendments and Supplements to the Law on FL Hypo Alpe-Adria Leasing Raiffeisen Leasing LB Leasing LILIPAKS VB Leasing S-Leasing Delta Leasing Zastava Istrabenz KB Leasing TBI Lizing HVB Leasing Porsche Leasing SCG ProCredit Leasing ? NBS operating license until 26 January ?

Achieved turnover of the existing financial lessors Balance sheet assets of the lessors in relation to the balance sheet assets of banks: In million EUR

Structure of achieved turnover (ALCS data) 2004I-IX 2005 By the object of financing 1. Passenger vehicles32.4%41.8% 2. Commercial vehicles33.6%28.4% 3. Production equipment25.5%21.8% 4. Other8.5%8.0% By lessee: 1. Industrial production33.7%25.1% 2. Private sector30.5%34.3% 3. Natural persons4.2%6.3% 4. Other (farmers, entrepreneurs, etc) 31.6%34.3%

Typical financial leasing terms Contracted on a period from 2 to 5 years; leasing fee is paid on a monthly basis and contracted with a foreign currency clause; Interest rate is in most cases variable and tied to the changes in the agreed benchmark interest rate (EURIBOR); VAT is paid on the total amount of leasing fee, including interest; Costs of the approval of financing (application processing) may amount up to 2% of the value of the object of lease; Other costs following the conclusion of lease contract: entry into the Register of Financial Lease Contracts, insurance of the object of lease, fee for the purchase of the object of lease, etc.

Financial lessors’ sources of financing External borrowing is the most frequent source of financing of financial lessors:

Objectives of the supervision of financial lessors Boosting the confidence of the public into the financial sector and leasing; Ensuring the transparency of the financial market; Financial market development based on fair competition; Consumer education and protection; More efficient implementation of consolidated supervision (connection between lessors and banks).

New secondary legislation (1/2) Issue of licenses ad consents –OBJECTIVE: safeguarding of the financial market integrity (business reputation of the founder and management bodies); Minimum requirements for the conclusion of financial lease contract and manner of disclosing the leasing fee –Minimum purchase value of the object of lease; –Mandatory documentation in the lessee’s file; –Uniform manner of disclosing the leasing fee – comparability between financial leasing and other types of financial services; –Manner of the advertising of services ; –OBJECTIVE: unification of financial lessors’ operations, transparency of the conditions of financing, consumer protection.

New secondary legislation (2/2) Reporting –OBJECTIVE: possibility of performing off-site supervision of financial lessors, timely detection of negative trends; Detailed terms and conditions of supervision - OBJECTIVE: regulating the off-site and on-site supervision procedure and defining the criteria for the pronouncement of corrective measures; Reserve balance –OBJECTIVE: Curtailment of external borrowing, redirection to domestic sources of financing, fair competition.

Additional information: Financial Leasing Supervision Department 23 Skadarska Belgrade Phone: 011/ Fax: 011/