«Tendencies and perspectives of development of Uzbekistan leasing market»

Z.B. Mustafaev

General Director of Uzbekistan Lessors’ Association

II ANNUAL INTERNATIONAL CONFERENCESeptember 21-23, 2011.

AgendaMacroeconomic indicators of Republic of

Uzbekistan during independence years

Leasing sector of Uzbekistan: current state and perspectives of development

Case study: analysis of development of leasing sector by example of “Uzbek Leasing International A.O.”

Republic of Uzbekistan

Location:Central Asia

Neighboring countries: Turkmenistan, Afghanistan, Kazakhstan, Kyrgyzstan, and Tajikistan.

Population: More than 28 million.

Main export commodities: cotton, foodstuff, chemical products, natural gas, plastic material and goods from plastic, metal, automobiles, equipment and others.

1. Sustained high rates of economic growth (7-9% per annum on average), fueled mainly by the internal factors, have been provided:

5

2. Macroeconomic stability, internal and external balance of the economy have been ensured:

Foreign trade balance (USD mln.)

3. Expansion of export potential and diversification of export structure:

Export structure, in % 1990 2010

Cotton 59,7 11,3

Foodstuff 3,9 9,7

Chemical production & fertilizers 2,3 5,1

Energy and oil products 17,1 24,8

Ferrous and non-ferrous metals 4,6 6,8

Machinery and equipment 1,7 5,5

Transport and construction services 1,3 9,1

Others 9,4 27,7

Share of main sectors of economy in GDP (in % to GDP)

Sectors of economy:FY2000 FY2010

Industry 14,2 24,0

Agriculture 30,1 17,5

Service 37,0 49,0

Including leasing services 1,02* 1.5%

Dynamics of leasing share in GDP and in total capital investments

FYValue of lease facility,

Billion UZSShare of leasing in

total capital investments, %

Share of leasing in GDP, %

2001 18,7 2,21 0,37

2002 31,3 2,73 0,42

2003 36,6 2,67 0,37

2005 90,6 3,72 0,6

2006 131,1 4,22 0,63

2007 214,5 3,91 0,76

2008 351,6 4,15 0,95

2009 401,6 3,19 0,84

2010 430,3 2,8 0,7

Leasing sector tendenciesLeasing sector tendencies

4,2% 3,9% 4,2%

3,2%2,7%

3,2%

0,6% 0,8%1,0% 0,8% 0,7% 0,8%

1,2% 1,2%

2,2% 2,3%1,8%

3,7%

0,0%0,5%1,0%1,5%2,0%2,5%3,0%3,5%4,0%4,5%

2006 2007 2008 2009 2010 First half of 2011

Share of leasing in investments to fixed assets, %

Share of leasing in GDP, %

Share of lease portfolio in GDP, %

Dynamics of lease operations development for 1996-2010 years.

mln. USD

* One-time operation on leasing 4 aircrafts by National bank of Uzbekistan for Foreign

Economic Activity is not included

Dynamics of lease portfolio

Billion UZS

Stages of development of leasing market in Uzbekistan from 1991 to 2010

years

1st stage: 1991 -1999 years.Implementation of international mechanisms andformation of legal base for lease operations.

2nd stage: 1999 -2005 years.Improvement of legal base for lease operations and establishment of leasing market.

3rd stage: 2005-2010 years.Popularization of leasing and formation of competitive environment in leasing market.

What are the benefits of leasing in Uzbekistan?

Leasing equipment is exempted from VAT and customs fees

Lease object is exempted from paying property tax

Lease payments are exempted from paying VAT

Decrease of taxable amount of turnover to the amount of payable interest

Leasing service ventures are exempted from paying profit tax until January 1, 2012 year

Inflow of private and foreign capital into the leasing market

Num

ber

of le

asin

g co

mpa

nies

Structural reorganization of lease objects

Technological equipment

Agricultural equipment

Vehicles

Property

Distribution of lease transaction by types of fixed assets

2011 year

Distribution of lease transaction by types of technological equipment

24,3%

21,0%

15,6%

10,9%

5,6%

21%

2,4%

1,3%

1,0%

12,8%

Melioration (24,3%)

Construction and construction materials production (21%)Food production (15,6%)

Light industry (10,9%)

Medical equipment (5,6%)

Printing (5,1%)

Office equipment (2,4%)

Wood processing (1,3%)

Trade (1,0%)

Others (12,8)

2011 г.

Uzbekistan Lessor`s Association

Established in 2005

Advocate member interests in interaction with government authorities;

Cooperation in elaboration of legislative base regulating lease services;

Assistance in business activity of entrepreneurs by means of promotion leasing services;

Facilitation of professional development of members;

Currently, there are 33 members of Association: - 24 leasing companies; - 9 commercial banks

Proposals by Association on improvement of the legislation base of leasing services

In Civil Code and Law on Leasing – implementation of secondary leasing mechanism;

In Law on Leasing – specify that lease object can be accounted on balance of Lessee except when Lessee is private entrepreneur;

In Law on Leasing – expand the types of pledge securities as provision under leasing projects;

Subordinate legislation – consider back-lease not as realization of property

Top list by first half of FY2011

Top 5 Leasing Companies

1. Uzqishloqxujalikmashlizing (66,6 billion sums)

2. Uzavtosanoatlizing (30,6 billion sums)

3. Uzmeliomashlizing (19,1 billion sums)

4. Uzbek Leasing International (18,4 billion sums)

5. Qurilishlizing (8,9 billion sums)

Top 5 Banks

1. Microcredit bank – 26,4 (billion sums)

2. Aloqa bank– 23,7 (billion sums)

3. Asaka bank – 11,9 (billion sums)

4. Ipoteka bank– 9,0 (billion sums)

5. Khamkor bank– 6,1 (billion sums)

Ассоциация лизингодателей Узбекистана

More than 150 participants from 15 countries

World Bank, IFC, ICD and others.

For more information: www.tilf.uz

Reasons for decreased volumes of leasing services

Limited access to funding sources both in national and hard currencies;

Leading rates of GDP increase;Implementation of custom duties on special construction

vehicles;Insufficient pledge property of leasing companies for provision

under bank loans securityStrong competition among leasing and bank loans

• EBRD

• IFC

• Maybank (Malaysia)

• NBU

Shareholders:

15 %

15%

35%

35%

First Leasing Company

Operations on the leasing market since 1996

Solid shareholders

Application of international standards in accounting and operational activity

Over 400 projects were successfully financed for total amount of 70 millions of US dollars

Internal funds, credit lines from NBU, Maybank, IFC, EBRD, ICD, bank Asaka and export-credit agencies

Uzbek Leasing International A.O.

Lease portfolio of Uzbek Leasing International A.O.

Sectors of economy financed by Uzbek Leasing International A.O.

Prerequisites for development of leasing sector

Existing demand for mini technology by SMEsModernization, technical and technological improvement of

industrial sector such as: machine-building, chemical, oil/gas and others.

Development of sectors with high potential to grow and potential export volumes such as: electro-technical, textile, food processing, tourism and etc.

Realization of transport-communication projects, construction and reconstruction of road infrastructure, development of roadside infrastructure contributes to increase of leasing volumes in such spheres as: motor vehicle, special vehicle, road construction machines and others.

Existing tax benefits

Our address: 4th Floor, InternationalBanking & Finance Center1, Beshyogoch Street Tashkent, 100066Republic of Uzbekistan

Tel.: (+998 71) 120-02-02 (+998 71) 140-77-44 (+998 71) 140-77-46 Fax.: (+998 71) 140-37-74E-mail: info@uzbek-

leasing.com www.uzbek-leasing.comwww.ula.uz

Thank you for attention!

www.ula.uz www.ula.uz