Leasing: Development of a Leasing Market in Bosnia and Herzegovina

In Bosnia and Herzegovina, leasing is regulated by two laws: ‘The Law on Leasing of the Federation of Bosnia and Herzegovina' (FBiH), and ‘The Law on Leasing on the Republika Srpska' (RS). Leasing companies are monitored and licensed by the banking agencies of the FBiH and the RS. Leases can also be provided by banks. The minimum amount of equity required to establish a leasing company is 250,000 KM.

In 2005, the leading leasing companies in Bosnia and Herzegovina founded the Association of Leasing Companies, with the aim of improving operations and stimulating development of the lease market. The basic objectives of the Association include connecting members to improve leasing in Bosnia and Herzegovina, exchange experiences, and promote leasing through newsletters and publications, study and monitor developments, launch initiatives with the appropriate bodies to amend legislation, represent the Association at international meetings, and cooperate with similar organizations.

The Association currently has eight members: Volksbank BH Leasing, Raiffeisen Leasing, Hypo Leasing, NLB Leasing, Euroleasing, Unicredit Leasing, S-Leasing, and Leasing ASA. Non-member companies include BBI Real Estate, the only leasing company operating on Islamic principles of financing. All the leasing companies are registered as limited-liability companies, their founders generally being international banking groups. The following table shows the total value and number of leasing contracts formed in 2006 and 2007, by area of financing:

Table 2: The value and number of leasing contracts (in millions of USD)

Assets	2005	2006	06/05%	2007	07/06%	2008	08/07%
Vehicles	159.68	171.96	7.69	262.12	52.43	268.14	2.30
Equipment	152.97	113.94	-25.51	174.98	53.57	153.53	-12.26
Real Estate	45.14	177.57	293.37	307.19	73.00	264.43	-13.92
Other	4.07	3.92	-3.65	12.82	227.15	1.66	-87.03
TOTAL	361.87	467.39	29.16	757.11	61.99	687.77	-9.16

Source: http://www.leasing.org.ba/bs/node/31 (18/07/09)

As the table plainly shows, assets are concentrated in real estate, which can be attributed to ‘sell and lease-back' transactions for the most part. In the first half of 2008, 103.7 million USD went on vehicles, 64.48 million USD went on equipment, and 98.69 million USD on real estate, and just 1.98 million USD went on other assets, totalling 269 million USD in all. There were 3,283 contracts signed for vehicles, 637 for equipment, 71 for real estate, and 25 for other assets, giving a total of 4,016 leasing contracts.

A key constraint on leasing companies' business is double taxation. A lease is more expensive than a loan, because of the VAT on interest and the costs of the transfer of ownership. The companies can only recover the VAT on the leased asset when financing vehicles or equipment in the VAT system. The choice between a loan and a lease therefore depends on interest rates. There is still unused potential in the market in Bosnia and Herzegovina, as can be seen from the 62% growth rate in leasing arrangements between 2006 and 2007 (ignoring 2008, where the annual growth rate fell because of the current financial crisis). Banks and leasing companies will no doubt continue to search for ways to be more competitive, and the client's final choice will be determined by transaction costs, guarantees, the length of approval procedures, and flexibility.

The biggest problem in the leasing business, after those discussed above, is the lack of support from the Ministry of Transport regarding permits for the transportation business. The current traffic law runs contrary to the fundamental premises of leasing. All licenses related to road traffic must be applied for by the vehicle owner, which means the leasing companies and not the lessee, greatly complicating the financing of trucks and vans.