On the State of Development of the Leasing

Report

on the state of development of the leasing,

non-bank credit and factoring markets in theCzech Republic in the 1st -3rd quarters of 2010

Macro-economic framework

(the development of economy did not lead to a growing demand for all non-bank financial products)

From the 1st to the 3rd quarter of 2010, non-bank financial products were offered in the conditions of slight economic recovery. It has resulted in a year-on-year growth of non-bank loans provided to businesses and factoring. However, the demand for leasing and consumer credit was still influenced by a continuing stagnation of investment and minimum growth of consumer expenditures. The limited demand resulted in a further year-on-year decrease of the volume of leasing and consumer credit, although the decrease rate slowed down in the 3rd quarter, compared to the previous quarters.

After a year-on-year GDP increase in the 1st quarter of 2010 by 1.1 % and by 2.4 % in the 2ndquarter, the economy kept growing in the following months. After the drop of the last year, this year the industrial production is growing, year on year (e.g. in August by 12.9 %). However, there was no growth of investment (in the 2nd quarter, it only grew by 1.3 %), and of household expenditures (e.g. in August retail sales only grew by 2.8 % year on year). Low interest rates (during the 1st quarter, the CNB kept the repo rate at 1 % and from June at 0.75 %) had no direct influence on the price of non-bank financial products. Even more so because the contracts on their provision are generally concluded for a longer period. The development of inflation (reaching 2 % in September 2010) had no significant influence on the financial market. Unemployment, which influences demand for and risks in consumer credit and consumer leasing, reached 8.5 % in September 2010. The percentage of non-repaid loans of households with banks and non-bank financial institutions increased from 3.8 % in November 2009 to 4.67 % in August 2010.

This year, the non-bank providers’ deals on leasing, credit and factoring are influenced – in addition to the continuing impact of the changes in the tax system – by the fact that a number of requests to finance investments and consumer plans are connected with significant risks and cannot be accepted when applying prudent criteria for customer and financed commodity evaluation. These facts also result in an expanding range of credit products offered by the leasing companies.

Development of Leasing of Movable Assets in Quarters 1-3 of 2010

(the rate of year-on-year decrease of leasing is slowing down)

In quarters 1-3 of 2010, the CLFA member companies financed by means of leasing machinery, equipment and vehicles at a total purchase price (excl. of VAT) of CZK 28.4 milliard. Since the share of the CLFA member companies in our market of movable asset leasing is in the long run around 97 %, it can be concluded that there was machinery, equipment and vehicles leased at approximately CZK 29.9 milliard in the CR in quarters 1 to 3 of 2010. Compared to quarters 1 to 3 of 2009, there was a year-on-year decrease in the volume of leasing of movable assets by 6.7 % in the biggest fifteen CLFA member companies. Compared to the 1st half of 2010, the year-on-year decline of our leasing of movable assets slowed down further (by 9.9 percentage points).

The total amount (initial debt) provided in quarters 1-3 of 2010 by the CLFA member companies for leasing of movable assets amounted to CZK 25.3 milliard.

In quarters 1-3 of 2010, the share of operational leasing in the total leasing of machinery, equipment and vehicles amounted to 29.5 % (according to the PC - exclusive of VAT). It is obvious that due to companies using outsourcing of operational and administrative work more and more frequently, the interest in operational leasing keeps growing (its share in total leasing was 26.9 % in 2009). The share of operational leasing in the leasing of passenger cars and utility vehicles already reached 57.4 % in quarters 1-3 of 2010. This does not include the number of vehicles (1,031) assigned to fleet management in quarters 1-3 of 2010.

Leasing of movable assets is still dominated by vehicle leasing in our country. Compared to previous periods, the share of passenger car leasing increased in quarters 1-3 of 2010 (from 25.6 % in quarters 1-3 of 2009 and from 27.3 % for the whole 2009 to 32.6 %). The share of lightweight utility vehicle leasing decreased (from 12.8 % in quarters 1-3 of 2009 and 8.9 % for the whole of 2009 to 5.2%); the share of trucks decreased as well (from 20.1 % in quarters 1-3 of 2009 to 19.9 %). The share of used passenger cars in the total passenger car leasing reached 6.3 % in quarters 1-3 of 2010, which is a year-on-year decrease (from 9.9 % in quarters 1-3 of 2009). The share of machinery and equipment leasing dropped, reaching 25.3 % (it was 33.3 % in quarters 1-3 of 2009 and 32.7 % for the whole 2009).

Similarly to previous years, almost half of leasing of movable assets went to the private sector of services and more than one third to the industry and construction industry.

In quarters 1-3 of 2010, the CLFA member companies concluded 36,409 contracts on leasing of machinery, equipment and vehicles (by 6,061 contracts less than in the same period of 2009) – of which 20,273 contracts on financial leasing and 16,136 contracts on operational leasing. In addition to that, 1,031 vehicles were newly handed over to fleet management ensured by the CLFA members. The average purchase cost of tangible assets financed by leasing grew (from CZK 780,000 to CZK 728,396 in quarters 1-3 2009).

Towards the end of the 3rd quarter of 2010, leasing of machinery, equipment and vehicles was running based on 301,609 active lease contracts concluded by the CLFA members (of which the number of active contracts on financial leasing was 242,585 and the number of active contracts on operational leasing was 59,024). The number of active contracts on financial leasing is decreasing, the number of continuing contracts on operational leasing is increasing. At the end of the third quarter of 2010, 2.487 vehicles were in the fleet management.

The accounting value of all leased machines, equipment and vehicles exceeded CZK 112.8 milliard at the end of the 3rd quarter of 2010. Accounts receivable from concluded contracts on leasing of movable assets exceeded in total CZK 108.2 milliard at the end of September 2010.

Development of Non-bank Market of Consumer Credit in Quarters 1-3 of 2010

(continuing year-on-year decline of the volume and number of loans provided)

Compared to the same period of last year, in quarters 1-3 of 2010 the volume of funds provided by non-bank companies as consumer credit decreased. In this period, 24 CLFA member companies were providing consumer credit (including a number of leasing companies, which provide it additionally to lease products).

In quarters 1-3 of 2010, the CLFA member companies provided loans for personal needs in total amounting to CZK 28.5 milliard, which is a year-on-year decrease by 7.2 %.The rate of year-on-year fall of non-bank consumer credit starts to slow down gradually. There was no major change in comparison with the volume of consumer credits provided in previous quarters of this year (CZK 8.8 milliard in the 1st quarter; CZK 9.8 milliard in the 2nd quarter; CZK 9.9 milliard in the 3rd quarter).

In quarters 1-3 of 2010, consumer credits were provided by the CLFA members in the form of personal loans (CZK 7.38 milliard – 25.9 % of the total volume of consumer credits), revolving credit (CZK 12.84 milliard – 45 %) and point of sale funding (CZK 8.3 milliard – 29.1 %). Compared to the first half of 2010, there was an increase in the share of personal loans (from 23.6 % to 25.9 %) and a decrease in the share of the point of sale funding (from 32.1 % to 29.1 %). From a long-term perspective, the share of revolving loans is growing, e.g. in 2007 it was only 35 %.

In quarters 1-3 of 2010, the CLFA member companies concluded a total of 755,104 contracts on consumer credit (257,561 personal loans – of which 56 loans for purchase of real estate, 188,641 revolving loans and 308,902 credit and instalment contracts within point of sale funding). This means by 54,347 consumer credits less than in the same period of 2009.

At the end of September 2010, the CLFA member companies administered accounts receivable from 2,328,944 running contracts on consumer credit with future accounts receivable amounting to a total of CZK 73.1 milliard.

Development of Business Credit and Sale on Instalment for Entrepreneurs in Quarters 1-3 of 2009

(further year-on-year growth – a result of the continuing diversification of financial products of non-bank institutions)

In quarters 1-3 of 2010, 27 CLFA member companies provided loans and other non-leasing financial products to entrepreneurs (financial services to end customers, without warehouse funding) in total amounting to (initial debt) of CZK 18.37 milliard.

Compared to the same period of 2009, that was a year-on-year increase of the volume of loans provided to entrepreneurs by 10.3 % in the leading fifteen companies. The CLFA member companies provided a total of 46,248 loans and instalment sales, of which 46 loans for real estate purchase, to entrepreneurs – by 1,008 loan products more than in the same period of 2009.

At the end of September 2010, the CLFA member companies administered 143,531 running contracts on loans provided to entrepreneurs. Accounts receivable from business loans and instalment sale for entrepreneurs concluded with the CLFA member companies exceeded CZK 40.8 milliard at the end of September 2010.

Development of Factoring Market in Quarters 1-3 of 2010

(stronger year-on-year growth of the use of factoring)

After the factoring deals of the CLFA member companies started to grow in the 1st and 2nd quarter of 2010, this tendency was not only confirmed but also strengthened in the 3rd quarter. In quarters 1-3 of 2010, accounts receivable were assigned to members of the Association of Factoring Companies (AFS CR), totalling to CZK 79.02 milliard (of which CZK 64.13 milliard to factoring companies which are also CLFA members). Compared to quarters 1-3 of 2009, this means a year-on-year growth by 17.9 % in the AFS CR member companies.

In quarters 1-3 of 2010, regress factoring continued to be the leading product in the Czech factoring market (75.5 %); the share of non-regress factoring reached 24.5 %. In quarter 1-3 of 2010, the share of domestic factoring reached 76.9 %, the share of export factoring 21 %, the share of import factoring 2.1 %. In the current economic conditions, the share of domestic factoring decreased year on year by 3.4 %. As of September 30, 2010, the AFS CR members provided their clients with funds amounting almost to CZK 18 milliard (of which CZK 15.72 milliard by CLFA members).

Significant Participation of the ČLFA Members in our Financial Market.

In Quarters 1-3 of 2010, the ČLFA member companies provided leasing of movable assets, factoring, consumer and business credits (initial debt) at CZK 136,29 milliard.