Iranian Leasing Firms Register Growth

Iranian rent-to-own firms registered another improved year-on-year performance while their main lessees were people seeking to purchase cars, the secretary-general of the National Association of Leasing Companies said.

“In the previous fiscal year (ended March 20, 2017), active leasing companies allocated a total of 40 trillion rials ($1.06 billion) to customers in the form of loans to buy goods, which indicate a 38% increase compared with the previous year,” Mohammad Hadi Moqei also told ISNA.

This reportedly shows that the leasing companies’ uptrend in increasing their operational revenues has continued into the third year, but as the official points out, the threat of a faulty financial structure is evident because “the shadow of balance sheet problems still looms over this industry”.

According to Moqei, car loans took the lion’s share of facilities and heavily tipped the balance to their side in comparison with other industries.

At 72%, an overwhelming majority of Iranian citizens used the services of leasing companies to buy cars, while 11% of the loans were spent on purchasing commercial vehicles.

Furthermore, 10% of the funds were allocated in the machinery and equipment sector, leaving only 7% for the purchase of immovable properties and medical equipment “which indicates a very low share of specialized leasing for buying equipment”.

As Moqei points out, debts owned by Iranian leasing companies dipped in the previous fiscal year, while they had increased in the year before.

“Only about 25% of the debts held by the leasing companies were long-term ones, meaning that the leasing industry is increasingly turning to allocating short-term credits,” he added.

As the official outlines, even though the rent-to-own companies registered an improved performance in terms of revenues, their total assets reached about 7 trillion rials ($186.6 million) last year, indicating a decrease compared with the year before.

“From the total assets of leasing companies, shareholders account for 1.5 trillion rials ($40 million), 3 trillion rials ($80 million) were provided by banks and 2.5 trillion rials ($66 million) were in the form of customer debts and pre-payments,” he said, adding that the share of participatory bonds was minimal.

The official also referred to a potential change in leasing companies’ interest rates, saying a decline would set their course toward long-term operations and present them with an opportunity and a threat at the same time, seeing how they are currently more focused on short-term operations.

In conclusion, Moqei enumerated four strategic solutions for the leasing industry, namely undertaking large-scale merger and capital increase, decreasing interest rates, exerting financial management on low-tier suppliers and improving management and engineering in the supply chain.