PRESSR: Uneven recovery for emerging Europe finance and leasing in 2022
London : Fitch Ratings' sector outlook for finance and leasing companies (FLCs) in emerging Europe (EE) is neutral for 2022, helped by the macroeconomic recovery in most markets. This facilitates growth and underpins asset quality and profitability against pressures amid the aftermath of the pandemic.
Fitch, however, expects the Turkish leasing sector's asset quality to be pressured by the recent Turkish lira devaluation. The same factor will drive portfolio growth in nominal terms but we expect lessors to curb risk appetite, particularly in foreign currency (FC) leasing. Funding from parent banks would support the companies' liquidity positions if needed.
Turkish factoring companies operate short-term and mostly lira-denominated balance sheets and are therefore less exposed to the pressure on the currency. This helps to manage the cost of risk despite the low credit quality of counterparties. Funding scarcity will restrict growth and constrain profitability.
In Russia, Fitch expects growth in rolling stock leasing and equipment leasing amid stagnation in the aviation and retail segments. We expect asset quality to remain strong despite an increase in the cost of risk as portfolios season. An increase in the cost of funding will additionally stretch profitability.
Fitch expects continuing growth for Kazakh leasing and microfinance (MFO) companies. This will support currently strong profitability and underpin nominal asset quality metrics despite inherently high credit risk.
Higher second-hand car prices will support the performances of car lessors and finance companies in Emerging Europe in 1H22 but we do not expect a sustained shift. Strong demand will help business origination for car lessors and used car financing, while supply chain disruptions will weigh on new car financing. We expect the microfinance sector in Georgia to benefit from the macroeconomic recovery and maintain business model resilience despite pressure on interest margins and the phasing-out of government support.
Our report, "Fitch Ratings 2022 Outlook: Emerging Europe Finance and Leasing Companies", is now available on www.fitchratings.com.
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