Techniques for Managing Non-Performing Lease Portfolio

•  Portfolio segmentation – this involves Identifying and Isolating non-performing lease transactions 

 Analyse and review all due diligence procedures and documentation.

• Analyse the current environment of default in view of the subsisting agreement governing the transaction; lessee state of affairs, credit rating etc.

     Remove Account Officers*- to avoid compromise as a result of familiarisation

     Commence repossession and/or Legal Proceedings which may include:

• repossession

• Acceleration of payments

• Declaration that any and all deposits or prepayments held by the lessor are payable

• Move to collect any additional guarantees, personal and corporate

• Gain the corporation of the lessee

      –     Gain the corporation of the vendor – engage the vendor for easy process

• Assumption of exiting lease by new lessee

      –     Re-leasing the repossessed equipment at its depreciated value

      –     Sale of the remaining lease payments

      –     Periodic contact with the lessee

ELAN Advisory Service

For more information: 08023176691, 08023179048, info@elannigeria.org, www.elannigeria.org

Leasing is the Last Resort for SMEs….ELAN Boss

Barrister Andrew Emonuwa, Executive Secretary/Chief Executive Officer of the Equipment Leasing Association of Nigeria (ELAN) in this interview with FELIX OLOYEDE, x-rays the performance of the leasing sector in 2020 and projects how it would perform this year. Excerpt:

The leasing sector was able to pull a 4.3% growth last year despite the disruption caused by COVID-19. What propelled this growth when many other sectors were in the negative during this period?

If you look at the leasing industry, it has been growing more than the economy. It slowed down last year because of the pandemic. Leasing is all about productive equipment. During the pandemic, some sectors were very active like the logistics sector, the health sector, etc. There were a couple of deals that were done after the lockdown, which was basically on logistics. Some of our members did transactions in that sector. This contributed to the growth. There was also the need for people to restart their lives, especially in the second half of the year. All these impacted the growth. In 2020, we did 4.3%, compared to over 14% in 2019.

The majority of the growth last year was from the oil and gas sector. Why is it so?

It has always been the major sector in the leasing industry. The value of equipment used in that sector is very huge. They use specialized equipment, and they depend heavily on logistics support. For instance, there was more demand for staff buses because of the social distance occasioned by the COVID-19 pandemic. So, the value going to the oil and gas sector is very huge. But again, the leasing sector did not grow as expected. It grew at a slower pace.

Despite being a N2 trillion sector…

It is about N10 trillion sector over the last 10 years.

It is only C&I Leasing that is listed on the Nigerian Exchange. Why is it so?

It depends on the corporate strategies of the various players. But it is not only C&I Leasing that is listed. It is only a specialized leasing company. They are players in the sector that are listed. For instance, the banks are equally doing leasing and they are on the stock exchange. Like I said earlier, it depends on the corporate strategies of the players. They may not want to be on the exchange. Maybe they have some private investors who are pumping in money. It depends on how they want to play. It does not mean because they are not on the exchange, they are not doing well. Many big companies in Nigeria are not listed on the stock exchange. For instance, it is just recently some of the telcos were listed on the stock exchange.

Leasing penetration is very low in Nigeria. What is ELAN as well as other stakeholders doing to improve this?

ELAN was established for that purpose. To promote leasing, we do that in various ways- through advocacy, awareness creation, stakeholders’ engagement, conferences, and press interviews. All these are ways to tell people the alternative benefits of leasing as a major financing option. All these are things we have been engaging other stakeholders to do. Other stakeholders like the development partners like the DFID. Now we are trying to work with GIZ. These foreign development partners are willing to support the growth and penetration of leasing in Nigeria. Even the government is also supporting the promotion of leasing. If you look at the Leasing Act of 2015, this is an effort aimed at increasing leasing penetration in the country. We are doing a lot in that regard. A lot can still be done because we are not there yet.

What the World Bank is doing through IFC; it has a lot of development programmes across Africa, but not in Nigeria because it feels Nigeria is good. What ELAN is doing in Nigeria is what they are doing in other countries.

There was a time many banks were into micro-leasing, but it seems this drive has slowed down. What is responsible for this?  

It has not gone down. In terms of value, it is the big end that is driving the industry, as a transaction can cost N1 trillion. But in terms of spread, it is the SMEs that is being done. About 80% of members focus on SMEs. Not because of choice, but because of funding. They cannot do some of these big-ticket transactions.

We are trying to work with JIZ to spread the gospel of leasing. We are partnering with GIZ to focus on five states of the federation on they can support SMEs through leasing. Leasing is the last resort for SMEs. We are doing a lot in that area.

The government is one of the major drivers of the Nigerian economy in terms of employment. To what extent has the government embraced leasing?

The government has not utilized leasing because of policy issues. That is not to say that it is not appreciative of what we are doing. What it does is support the leasing environment. So that the productive sectors can have access because the capital formation is very key in any economy. That is what leasing is all about. It is to enhance capital formation in the economy. If the leasing industry can do that through the support of the government, that is fantastic. The Equipment Leasing Act was promulgated to support leasing, especially the automotive industry. The government believes not many Nigerians will not be able to afford the Nigerian-made vehicles outrightly. We are still working with the government on this. We are also discussing with the Lagos State Government and fishermen in the state how they can use leasing to meet some of their equipment needs. We are also encouraging the government to embrace leasing and identify partners they are working with to support them with leasing products.

The automotive policy has not worked. How has this impacted the leasing industry?

If the automotive policy was well implemented, to encourage many Nigerians to patronize these made-in-Nigeria vehicles, to encourage more production, then you need to have a financing scheme. That is where leasing comes in. Recently, the automotive council was trying to launch a vehicle financing scheme. We are still watching out for that. It will impact the leasing industry positively. We hope that it will materialize as expected.

What is the potential of the leasing industry in Nigeria if properly harnessed?

If you look at the Nigerian economy, there are a lot of gaps. There are a lot of financing gaps in all sectors of the economy. It means a lot of leasing opportunities. The government currently talking about agriculture, mining and health, there is no sector that you will not find leasing opportunities. All that we need to do is for players to articulate these policies and find a way of meeting these demands because it is very huge. The leasing industry will continue to grow because of the capital deficiency in the system.

What is your projected growth for this year?

This year has started well. Although there was nothing much in the first quarter because people were trying to adjust to the current situation. But in the second, third and last quarters, we expect more momentum in the economy. As the economy gears up, we will see a lot of financing is done. At the same time, you need to look at other challenges in the macro-environment. The insecurity is still there. This is a challenge that can hamper any meaningful economic growth, which may dovetail to the leasing industry. But by and large, we are expecting better growth this year

HOW TO USE EQUIPMENT LEASING TO GROW YOUR BUSINESSES

Leasing is the creative financing alternative of today because it meets diverse needs. A lease is an agreement whereby the lessor (owner of equipment) convey to the lessee (user of equipment) the right to use the asset for an agreed period of time, in return for a payment or series of payments.

Below are the reasons why this is so

• Alternative source of capital financing: Leasing  provides an alternate source of financing where a company is faced with tight credit terms, bank lending restrictions or other economic factors. It is a prudent means of equipment acquisition. It releases credit lines that can be used for other purposes, ie. It allows for full use of borrowing capacity.
• Affordable means of acquiring equipment: Leasing provides an affordable avenue for lessees (user of equipment) to acquire the much needed asset with minimal initial payment. This is because payment constitutes very small fraction of the equipment cost, which is spread over the lease period.
• Flexibility in lease rental payment: Lease payment can be made to coincide with earnings generated from the use of the equipment. This is particularly advantages in a situation where companies have seasonal income.
• Longer payment terms than other forms of credit: Leasing affords the lessee the opportunity of payment over a longer period than with most other forms of financing. This allows the lessee the opportunity of reducing financial commitments particularly in times of distress.
• Easy accessibility of equipment: Lease facilities are often easier to obtain than loans. Equipment under lease, while providing facility for use, also serves as collateral for the lease since ownership actually resides with the lessor (owner of equipment). Hence, in the event of a failure on the part of the lessee to pay, the equipment can be retrieved by the lessor.
• Budget limitations: Acquisition of equipment not complemented by capital expenditure budget can sometimes be accomplished through lease with rental payments classified as operating expenses.
• Technology considerations: When firms purchase equipment, they face the possibility that at some time the asset may not be efficient as recently manufactured ones. The lessor may elect to obtain the new version for the lessee, if the latter desires.
• Collateral: There is usually no need for additional security or collateral for a lease. Generally, the equipment serves as security.
• Risk of leakage: There is reduced risk of leakage in equipment leasing transaction, since the lessee does not receive cash. The lessor purchase and supplies the equipment thus reducing the diversion of funds.

Reasons to Choose Equipment Leasing over a Loan

In a world of ever-decreasing human interaction, why would someone seek the help of an unfamiliar leasing company when their local banker calls them by name? We will tell you why:

1. The first major difference between a lease and a loan is collateral. A loan will automatically require a collateral before it can be granted, leases does not require any form of collateral, because the leased asset will stand as the collateral, making leases the easiest and most convenient means of asset acquisition you can get.
2. Leasing provides additional source of credit to the customer asides the traditional financing methods. Leasing does not limit the capacity of the customer to borrow unlike loan that most cases have restrictive covenants
3. Leases are in terms of time and costs involved in negotiating terms and conditions of each financing alternatives.
4. Leasing is highly flexible, than loans in terms of rental payments . Essentially, leases can be packaged in various forms to meet the cash flow and circumstances of the customer. Rentals can be even, skipped  or step up or step down not readily available in loans
5. Lease rentals are generally fixed outflows unlike loans that have interest rates that change with market conditions.
6. Leases give the customer options to either return, renew, or purchase the asset at the end of the lease unlike loans

Equipment leasing advantages:

A lease facility is generally easier to package, and takes fewer days to deliver, with few financials or paperwork requirements. Leasing transactions can be packaged to include delivery, installation, training, hardware and software and services etc.

Another interesting area in leasing is the rental payment. Rentals can be structured to meet the cash flow of the lessee, which can be done monthly, bi-monthly, quarterly, half yearly or otherwise. For instance, a school proprietor that acquire a school bus or power generating sets through leasing may decide to be paying rentals only during the school session while no payment is done during the holidays period. This gives greater flexibility as well as renewed focus on its core business.

This important choice of asset acquisition model should be based on your business’ requirements and circumstances. With ELAN we help you take the time to get to know you and understand your business goals and objectives, and recommend Lease Practitioners with workable lease solutions, geared towards meeting your business goals and objectives.

How Does Equipment Leasing Work?

Basically, leasing involves productive assets owned by one person (the lessor) but used by another person (the lessee) in return for periodic rentals, resulting in convenient and predictable cash flows for the lessee.

Equipment Leasing services are being provided by leasing companies. A Lessee (user of asset) approaches a Lessor (owner of asset) for a lease facility, stating the equipment needed and the purposes it is expected to serve. The lease is approved after meeting the requirements of the Lessor, the asset is delivered and the transaction commences. Due to the installment payments in a lease, the lessee is able to obtain the use of an asset without tying up scarce funds needed to acquire the asset.

For instance, a small construction company needs to purchase a bulldozer for expansion purposes. The firm rather than tying the huge sum of money on this single asset and become cash-strapped, the firm may go for leasing. Accessing this equipment through leasing, releases its funds for other productive ventures such as working capital. The firm is now enjoying the benefits of this new equipment while paying the rentals over time.

Basically, there are 2 types of leasing: Finance and Operating Leases. Under finance leases, the lessee uses the asset while paying rentals. The intention of the lessee is to own the asset at the end of the transaction, while under operating leases, the lessee uses the asset and later returns it to the lessor.

In other to further assist your search for a credible leasing service provider, The Equipment Leasing Association of Nigeria (ELAN) can guide prospective lessees to credible lessors faster.

What to Look for in a Leasing Service Provider?

Now that you understand a little bit about lease financing, you will need to know what to look for in a leasing service provider. Financing, leasing and loans can be a tricky business.

The important qualities to note are knowledge, integrity and reputation, diversity of product, flexibility and responsiveness along with industry ratings. A leasing company with the ability to lease assets with high level of understanding of the lessees’ needs is important when selecting a leasing company.

Leasing makes better sense, DON’T BUY IT, LEASE IT…

Need to know more on how equipment leasing can be useful to you and how you can get paid from leveraging it? visit www.elannigeria.org to download our resources and follow our social media pages for more updates. You can also speak to leasing expert or contact us info@elannigeria.org, 08035415478, 08023176691.

ELAN MEETS OSUN STATE MINISTRY OF ECONOMIC PLANNING, BUDGET AND DEVELOPMENT

In line with the resolution of creating more visibility and enhanced market opportunities for the industry, ELAN met with the Honourable Commissioner, Osun State Ministry of Economic Planning, Budget and Development, Prof. Olalekan Yinusa in Osogbo recently. The Honourable Commissioner expressed the willingness of the State to work with ELAN members in the development of the State. Possible opportunities in the state which include supporting SMEs, Youth Empowerment, Agriculture, Infrastructure, etc, are being identified. We will keep you abreast of this development as it unfolds.