Leasing companies are currently exploring new business avenues and are likely to set up joint venture entities in Middle East (ME)to promote cross-border leasing activity and promoting leasing business to small and medium corporate houses to help cut poverty.
Recently Bahrain Monetary Agency (BMA) has also helped the members of the Leasing Association of Pakistan (LAP), increasing the association's relations with banks, financial institutions and financial adviser to open a new outlet in this region, besides the depth and expertise of the leasing sector of Pakistan can perform an effective role in combining the financial resources and the strategic advantages of Bahrain, as a regional financial centre for the Middle East.
Atiq Ahmed research analyst at Capital One Equities said that leasing sector has become a prime vehicle for raising credit among small and medium entrepreneurs.
Moreover, the members of LAP, in association with Swiss Development Agency, are catering to micro-finance sector, helping people in the remote areas, especially in NWFP, providing loans to those who are skilled but have no funds to run their business.
Several companies have allocated separate funds for women entrepreneurs.
Leasing companies have been the major intermediaries in creating awareness and delivering credit to the SME sector besides acting as a catalyst for development for auto industry and consumer goods trade.
The banks' low cost funds, colossal operational capability and extensive branch network have created an environment in which leasing companies had to make fundamental strategic changes in their business pattern.
Despite this stiff competition, several companies made incredible gains in their net income.
SECP has advised leasing companies to aim at multidimensional growth to achieve an enhanced role in the financial sector and would have to catch up with the trend.
There is also a need for the leasing companies to develop and introduce innovative products and services for their clients.
Leasing sector has registered a profit after tax of Rs 578 million in during nine months as against Rs 446 million in the same period last year, showing an increase of 29 percent.
The revenue of the sector has declined by 7 percent to Rs 3,388 million during the nine months period.
The figures depict that a number of leasing companies ended their respective year-end in profitable zone. This is a nourishing sign for the leasing industry.
In the recent budget announcement, government has reduced custom duty on all types of plants, machinery and equipment not locally manufactured to 5 percent.
There will be no sales tax and withholding tax on the above mentioned items that were previously charged at the rate of 15 percent and 6 percent respectively.
Although this proposition will not have a direct impact on the leasing sector, improving economic conditions, with a gradual rise in investment activity is expected to increase the demand for leases in the country.
A decline in the cost of borrowing will eventually be followed by a corresponding fall in lease rates, which will keep spreads constant. This factor is likely to increase the FY04 spread for leasing companies.
However, we believe that the leasing companies, in order to boost the demand for leasing services will pass on the benefit to the clients leading to improved revenues, which would eventually provide a significant boost to earnings.
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