HOST: Hello. RBC TV is now at VTB’s "RUSSIA CALLING!" 2020 Forum. Today we will talk abot the leasing market with Dmitry Ivanter, CEO of VTB Leasing. Hello, Dmitry.
Dmitry IVANTER, CEO of VTB Leasing: Hello, Pavel. Greetings to RBC TV viewers. VTB Leasing also watches RBC to keep updated on the news and business and economy trends.
HOST: Off to a good start. And now we will probably offer some news to those who are watching the interview. The leasing market is the largest financial market in Russia by volume, second only to the banking market. How has the pandemic affected your business?
Dmitry IVANTER, CEO of VTB Leasing: Let me say straight away that our worst expectations we had in spring never came true.
HOST: Could you share your scariest scenario straight away?
Dmitry IVANTER, CEO of VTB Leasing: I’m ready to give you some specific facts for our operations. First, it’s common knowledge that we had agreed with Aeroflot on leasing payment delay, and during the period when the fleet was almost completely grounded, we rescheduled leasing payments from 2020 to 2021. But this schedule has had to resume for a number of Aeroflot aircraft, and Aeroflot has de-facto resumed its payments. So our customer does not have any requests for a repeat restructuring or payment delays now. As for small and medium businesses, that was hit quite hard by the pandemic – in the peak periods we received up to 500 customer applications a day for a reduction of their financial load, and we accommodated them. We have about 4 thousand contracts and we partially rescheduled payments for various periods, while operations were limited. And here’s a positive fact, 93% of our customers who had their payments rescheduled, have come back to the new schedule and started meeting their obligations to us. And we expect that 5% more will soon get back to the regular schedule. So the default rate for the portfolio of affected customers will essentially be the same as for the overall portfolio, maybe a little higher. Here’s another fact, we set up a safety net, an additional provision when we had seen the situation with our customer issues, a provision of about half a billion rubles. Here’s what I can say now, we will not require this reserve in this amount. Maybe, we will use up probably 25z% of the reserve we had planned.
HOST: So you are rather optimistic despite the second wave that we see starting and the concerns that the Russian economy may again be partially locked down, as it is happening now in France or Germany.
Dmitry IVANTER, CEO of VTB Leasing: Of course, severe restrictions, when customers cannot operate, affect their ability to pay. We are hopeful this will not happen. But in this case everything shall depend on the sanitary and epidemic situation. As for the economic potential of our business, we see that many sectors, despite the challenging year, continue developing and upgrading, for example, fleets and vehicles. But for some industries the situation is far worse than in others.
HOST: Probably your portfolio dynamics will be the best way to illustrate the situation. What was your financing volume, let us assume, in Q1 2020 versus 3 quarters of 2019?
Dmitry IVANTER, CEO of VTB Leasing: For now we do not have any market statistics. We have our data and we see, that over 9 months we have slipped 15% lower for new business versus last year, it’s about RUB 80 bn. We believe the market will still slump a little more, by about 20 and some percent, probably, for the market. And what’s important here is that this is a leading market segment, aviation, there have been almost no deals in the sector this year. And aircraft makes up for a significant share of major leasing companies, for us the share of aircraft is 40%.
HOST: Yes, aviation industry is one of the hardest hit both in the Russian economy and globally. Do you expect any new deals in the aviation industry over 2020 and in 2021? I recall some news that not one aircraft was ordered on October.
Dmitry IVANTER, CEO of VTB Leasing: It is true, now airlines have excessive aircraft fleets. They do not need new aircraft unlike previous periods, when the market was growing. So yes, we understand that many companies even cancel future deliveries, and it is not a Russian trend only, it is global. But we still expect some deals to go through, and this will be primarily related to support of domestic aircraft manufacturers. It has been announced that there will be a deal for 59 SSJ aircraft with government support, and some SSJ deals will be made with regional carriers. As for orders for foreign aircraft, we think there will be partial deliveries of previously ordered new aircraft for portfolios of leasing companies. As I have already mentioned, customers will probably cancel some aircraft, if their contracts allow for that. And some aircraft will still be delivered and there will be deals in 2021.
HOST: During quarantine online channel has become an important customer outreach tool for financial institutions both in Russia and all over the world. Have you made your online tools and products available for remotely operating customers, not having to come to an office, not having to conduct negotiations offline?
Dmitry IVANTER, CEO of VTB Leasing: Thenk you, Pavel, for a very interesting question. Do you yourself have any first-had experience with leasing?
HOST: No, not with leasing. I have some experience with banks.
Dmitry IVANTER, CEO of VTB Leasing: The thing is that banks and even insurance companies use this tool much more actively, because they have a very large segment, a main one, retail customer operations. In Russia leasing is mainly about businesses, so here we are B2B. Online operations are harder to implement for B2B sphere. Let me give you a simple case from the life of our company. We have provided an option for our customers to get their electronic invoices in their individual online cabinets. This is a regular situation now, these are accepted with no issues whatsoever, by the Tax Service, they do not have to go anywhere, as soon as it is available in your cabinet, you can get it and send to a tax office. Only 30% of our customers use this option. Why is that? We started reviewing the issue. We want to shift to e-document management, we want to be a paper-free company. But we can only do it simultaneously with our customers, we are not living in vacuum. We work for our customers. Between us and the tax service there are customers, and customers have accountants, and accountants require documents with blue stamps. And I see this as a cultural issue, an issue of business-culture in Russia, as we implement digital and online services. We are even considering stimulation programs to nudge our customers toward online services.
HOST: So this is not a regulatory issue, it is a customer psychology issue.
Dmitry IVANTER, CEO of VTB Leasing: There are issues with regulations as well, for example, with customer identification. If we consider a complete online leasing application, we have Rosfinmonitoring legal requirements, Central Bank requirements, because we are an integral part of VTB Group as VTB Leasing. Let’s look at video identification of customers, it is a pressing issue for us. We think there will be a product like seamless online leasing, when a leasing product could be received as a physical asset, you cannot receive it online. This is the difference of a leasing company from a bank. We do not give our customers money, we give them what they need to carry on with their business, airlines need aircraft, railway operators - railcars, locomotives, small and medium business needs various transport vehicles, trucks and pickups, special equipment for road construction companies etc. We operate real property. This is why we cannot get online completely, with all our real property. But leasing has its advantages, of course, and a customer can get what he needs and very quickly, if compared to him going to a bank for a loan. Our small and medium business customers, what are their reasons to give preference to leasing, if they need buses to carry passengers, when they win transport tenders. Nobody has buses sitting in their inventory to set up these routes. Buses need to be procured urgently and drive out to start carrying passengers as soon as possible. This can only be done quickly and in the shortest possible time through leasing, where it’s just 10 days and here you have the buses.
HOST: The primary share of leasing company portfolios and major leasing companies is related to the transportation sector. How does the transportation sector feel now, what is you impression, has it started recovering from the quarantine limitations, do you see any potential restrictions coming back, that we see now?
Dmitry IVANTER, CEO of VTB Leasing: It has to be said that the situation differs. There’s freight transportation, it sees almost no decline. Even speaking of the severest restrictions, probably only 5%.