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ASSET FINANCE INTERNATIONAL

IN ASSOCIATION WITHWHITE CLARKE GROUP

ASSET & AUTO FINANCE COUNTRY SURVEY 2017

Asia Pacific

Asia Pacific Asset and Auto Finance Country Survey 2017

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White Clarke GroupWhite Clarke Group is the market leader in software solutions and business consultancy to the automotive and asset finance sector for retail, fleet and wholesale. White Clarke Group solutions enable end-to-end credit processing and administration to streamline business practice, cut operational cost and deliver outstanding customer service. White Clarke Group has a 25-year track record of leadership and innovation in finance technology, consultancy and new market entry. Clients value White Clarke Group's industry knowledge, market intelligence and innovation. The company employs some 500 finance and technology professionals, with offices in the UK, USA, Canada, Australia, Austria, Germany, India, and China.

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Acknowledgements

Nidhi Bothra, Executive Vice President, Vinod Kothari Consultants

John Dennis, Managing Director, Australian Structured Finance Group

Paul Errington, CEO, Connaught Finance Investments, Hong Kong

Hugh Lander, CEO, BOQ Finance

Professor Yanping Shi, Professor of Finance, School of International Trade and Economics, University of International Business and Economics, Beijing

Ting Yang, PhD student, School of International Trade and Economics, University of International Business and Economics, Beijing


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Contents

Acknowledgements 3

Foreword 5

Asset finance trends in Asia Pacific 6

China 9

Australia 12

India 16

Republic of Korea 18

Japan 21

Sri Lanka 23

Summary 24


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Foreword

By Brendan Gleeson, Group CEO, White Clarke Group

Welcome to this 2017 survey of asset and auto finance in Asia Pacific, produced by Asset Finance International in conjunction with White Clark Group. The report aims to identify the state of the current market in the region and the areas tipped for more significant growth.

It would do a huge disservice to Asia Pacific to consider it as a single entity, and it will come as little surprise to discover that this is a hugely diverse region with national economies at very different stages of development. Historic indicators from some more advanced markets, however, do suggest others are on the brink of exciting growth.

In India, for example, oil demand is where China’s was in 2002, while the country’s GDP per capita in 2015 was the same as China’s in 2005. If India were to follow the same economic trajectory as China in the next 10 years, the business potential would be enormous. For the asset finance industry, much rests on the fine detail of new indirect taxation, the Goods and Service Tax, and how this will apply to leasing and loans. Automotive finance is already forging ahead, tipped for 10% growth this year.

China’s new car market is the largest in the world, dwarfing even the United States, but the twin problems of congestion and pollution are seeing controls on car ownership in eight major cities. With truck sales up by 30% and car sales up 7% year on year in the first quarter of 2017 to more than 7 million units, China is an intoxicating prospect for lenders - 250 million people in China possess a driving license, but only 180 million own a car. Regional expert Paul Errington, chief executive officer of Hong Kong-based Connaught Finance Investments, forecasts growth in excess of 20% in China’s asset finance market this year.

In the established market of Australia, however, concerns about the global economy and fears of a higher exchange rate are dampening the market, with equipment finance up just 1.8% in 2016, although fleet leasing achieved an eye-opening 21% growth. The low cost of funds and stiff local competition are squeezing margins, driving consolidation and centralization among both banks and industry bodies.

In both the Republic of Korea and Japan, leasing volumes slipped back in 2016, and concerns over the US announcement that it is reviewing its free trade agreement with Korea have cast a shadow over this year’s prospects. But when one door closes another opens, with Sri Lanka tipped for positive growth alongside a number of the smaller economies in Asia Pacific.

Brendan Gleeson


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Asset finance trends in Asia PacificLocal and global political winds are blowing through the finance markets of the Asia Pacific region. The repercussions of the Brexit vote followed by the election of Donald Trump have the potential to impact the economies in the region, while escalating tensions between the United States and North Korea add troubling uncertainty.

The two biggest economies in the region, China and India, appear to have the size and momentum to withstand whatever happens on the world stage, and both hold enticing prospects for asset finance companies.

“Both economies are showing political support through tax breaks and economic zones that will assist asset finance growth,” said Paul Errington, chief executive officer of Connaught Finance Investments, based in Hong Kong.

While the decision of the US to end its involvement in the Asia Pacific Trade Agreement at the start of 2017 may jeopardize smaller economies, the impact on China appears limited.

“China already has the Regional Economic Partnership, which can easily replace the USA based agreement and attract stronger regional trade,” said Errington.

He sees the political stage as having the greatest impact on growth in the region, with economies adjusting to new elections over the last three years in Hong Kong, Philippines, Sri Lanka, Myanmar, Thailand, Laos and Nepal.


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“Political risk is always a factor in any economy and some far more than others,” said Errington. “In the region the Maldives and Myanmar are probably the highest risk of economic implosion through political machinations.”

These, though, are tiny economies compared to some of their neighbors, and investors would be wise to view Asia-Pacific as a hugely diverse region, where a broad-brush approach is in danger of missing significant local differences in critical measures like per capita income and the penetration of connected devices.

Connaught has divided the region into tiers, ranked one to six, grouping countries according to how established each national asset finance market is, as well as factors such as size by GDP, GDP growth, population, industry growth and political risk (see table 1).

With an umbrella view of the region, the Asian Development Bank (ADB) forecasts GDP growth for Asia Pacific of 5.7% in both 2017 and 2018, as controlled growth in China is balanced by more dynamic growth elsewhere.

“Growth is picking up in 30 of the 45 economies in developing Asia, supported by higher external demand and rebounding global commodity prices,” said the ADB.

The bank anticipates authorities in China maintaining financial and fiscal stability as the country rebalances its economy from industry to services, with domestic consumption driving growth. This in turn will reduce China’s reliance on exports.

But it is the economic development of India that excites so many experts. Measures of GDP per capita, oil demand and even the flourishing new car market remind specialists of China a decade ago, and if India can follow a similar economic trajectory, the Asia Pacific region will have two titans of the global business world.

“Government deregulation and reform of taxes on goods and services, among other areas, should improve confidence and thus business investment and growth prospects [in India],” said the ADB. “Growth is expected to edge up to 7.4% in 2017 and 7.6% in 2018.”


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Country Population (July 2016)

GDP (2015 official exchange

rate) US$

Last year’s GDP growth

Asset finance growth

Major growth sectors

Tier 1 – Mature market

Australia 22,992,654 $1.257 trillion 2.9% +0% - 5% IT, Mining, Manufacturing

Tier 2 – Established market largest growth potential

China 1,373,541,278 $11.39 trillion 6.6% +20%++ IT, Construction, Mining, Manufacturing, Renewable Energy

India 1,266,883,598 $2.251 trillion 7.6% +10% - 15% Agriculture, IT, Construction, Manufacturing, Medical

Tier 3 – Established market small growth potential

Hong Kong 7,167,403 $316.1 billion 1.4% +0% - 5% IT, Renewable Energy

Singapore 5,781,728 $296.6 billion 1.7% +0% - 5% IT, Manufacturing

Tier 4 – Similar established market good growth potential

Malaysia 30,949,962 $302.7 billion 4.3% +0% - 5% Agriculture, IT, Manufacturing, Oil & Gas, Renewable Energy

Thailand 68,200,824 $390.6 billion 3.2% +5% - 10% Agriculture, IT, Manufacturing, Renewable Energy, Medical

Tier 5 – Emerging markets large growth potential

Bangladesh 156,186,882 $226.8 billion 6.9% Agriculture, IT, Manufacturing,

Sri Lanka 22,235,000 $82.24 billion 5% +10% - 15% Agriculture, IT, Renewable Energy, Infrastructure, Construction

Philippines 102,624,209 $311.7 billion 6.4% +15% - 20% Agriculture, IT, Renewable Energy, Infrastructure, Mining

Indonesia 258,316,051 $941 billion 4.9% +15% - 20% Agriculture, IT, Renewable Energy, Infrastructure, Mining, Oil & Gas

Vietnam 95,261,021 $200.5 billion 6.1% +20% IT, Renewable Energy, Infrastructure

Cambodia 15,957,223 $19.37 billion 7% +20% IT, Renewable Energy, Infrastructure

Tier 6 – Political risk high and small markets

Bhutan 750,125 $2.085 billion 6% +20%+ IT, Renewable Energy, Infrastructure

Nepal 29,033,914 $21.15 billion 0.6% +20% IT, Renewable Energy, Infrastructure

Maldives 392,960 $3.27 billion 3% +0% - 5% IT, Fisheries, Construction

Myanmar 56,890,418 $68.28 billion 8.1% +10% - 15% Agriculture, IT, Renewable Energy, Infrastructure

Brunei 436,620 $10.46 billion 0.4% +15% - 20% IT, Oil & Gas, Construction

Laos 7,019,073 $13.76 billion 7.5% +10% - 15% Agriculture, IT, Renewable Energy, Infrastructure

Disclaimer – By the very nature of these market, actual statistics are hard to verify and forecasts are taken from company experience and market knowledge. High political risk countries, such as Myanmar and Maldives, can experience an economic collapse with little warning and therefore all forecasts are based on the current situation.

Source: Connaught Finance Investments


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ChinaThe headline economic figures for China are enough to greatly impress any finance professional. The country’s economy may be slowing, but most western markets would be thrilled with annual domestic growth of between 6% and 7% and the consumer demand that accompanies it. Chief among this demand is China’s apparently insatiable appetite for cars, as well as burgeoning opportunities for new services that require major asset and infrastructure investment.

But technical obstacles are currently thwarting the development of leasing in certain sectors, according to Dr Yanping Shi, professor in the Department of Finance at the University of International Business and Economics in Beijing.

He said the auto leasing industry faced the major challenge of resolving the ownership of leased cars.

“China has not built an institution or platform responsible for cars’ ownership registration, which causes inconvenience for both lessors and lessees,” said Professor Shi.

“If the problem of cars’ ownership registration could be solved and the cars’ ownership protection could be enhanced, auto finance penetration can be increased.”

With a new car market of 25.53 million cars in 2016, up 14% year-on-year and 45% larger than in the United States, it’s easy to see why manufacturers and finance houses are focusing so heavily on China. For the Volkswagen brand in particular, buoyant sales in China offset falling sales in other key markets last year, according to Jato Dynamics.

The new car sales figures are even more impressive in the light of car purchase restrictions in eight major cities - Beijing, Shanghai, Guangzhou, Guiyang, Tianjin, Shijiazhuang, Hangzhou and Shenzhen. The restrictions are designed to combat the mounting problems of pollution and traffic congestion, and impose a limit on the number of license plates, either via a lottery or an auction system. The policy has led to smaller, unrestricted cities fueling the booming car market.

Sales were also boosted by a five percentage point tax cut in late 2015, which supported sales throughout 2016, according to John Zeng, director, LMC Shanghai, an automotive consulting group.


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“But the looming end of the cut, which would have taken the tax back to the standard 10%, caused a spike in demand in late 2016,” he said. “Now that the purchase tax has been set at 7.5%, rather than 10%, a residual boost in 2017 remains likely, though an early-year slowdown seems inevitable. But we should expect another, though smaller, surge at the end of this year.”

After faltering car sales in the first two months of the year, a spike in March ensured the first quarter of 2017 finished on a positive note, with the China Association of Automobile Manufacturers reporting new car sales of 7,002,000 units, up 7% year on year. The sales of commercial vehicles were up 22.9% in the first quarter of 2017, compared to the same period last year, at 1,054,000 vehicles. Truck sales, a bellwether for the health of the economy, were up by 30%, offsetting a 20% fall in bus sales.

The longer term question is whether the future of driving in China is based on car ownership or usage. BMW-owned leasing company Alphabet launched in China this year with a promise to deliver ‘mobility solutions’ rather than simply supply leased cars. The BMW Group already owns Herald International Financial Leasing, which specializes in leasing commercial vehicles across China.

Ivy Wong, chief executive officer of Herald International Financial Leasing, said: “By leveraging HIL’s extensive network resource and strength in the auto leasing industry, we will integrate Alphabet’s experience and innovation to provide business mobility solutions, from A to Z, to match the enterprises’ business mobility needs in China, too.”

Strategy&, a subsidiary of PricewaterhouseCoopers, has calculated that 250 million people in China possess a driving license, but only 180 million own a car, and with a parc of 120 million private cars, many of these are shared between households.

This primes the pump for an increase in car sharing solutions – flexible rental clubs where it’s possible to hire a car for as little as an hour. Strategy& forecasts that the market will grow at a rate of over 50%, albeit from very small beginnings (circa 30,000 cars at the start of 2016). The high cost of depreciation, parking and dispatch means car sharing companies are losing an average of CHY50 (US$7) to CHY120 (US$17) per vehicle per day, according to Strategy&, but it also estimates that by 2020 the B2C car sharing fleet will exceed 150,000, while the B2B car sharing fleet will surpass 170,000.

Strategy&, a subsidiary of PricewaterhouseCoopers, has calculated that 250 million people in China possess a driving license, but only 180 million own a car, and with a parc of 120 million private cars, many of these are shared between households.


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New cars may be a shiny, more glamorous sector for asset finance, but other industries arguably present more immediate opportunities. At the University of International Business and Economics, Professor Shi said: “The healthcare equipment sector and construction equipment sector will perform best in 2017. The development of private hospitals will increase demands for healthcare equipment.”

He also identified attractive prospects for the construction sector. He said: “Firstly, some infrastructure projects will increase demands for construction equipment. Secondly, most of the existing construction equipment is old and outdated, so construction companies need to update their equipment.”

Paul Errington, chief executive officer of Hong Kong-based Connaught Finance Investments, forecasts growth in excess of 20% in China’s asset finance market, led by IT, construction, mining, manufacturing and renewable energy.

And while the experience of an individual bank may not reflect the market as a whole, the results and strategy of China Development Bank Financial Leasing do at least offer a snapshot of the local market. CDB Leasing is heavily involved in aircraft, ship, commercial vehicle and construction machinery leasing, and last year drove its revenues up 4.2% to CHY11,440.8 million (US$1657.2 million), while pre-tax profits rose by 59.1% to CHY768.1 million (US$111.2 million).

“2017 is a year full of opportunities and challenges for the leasing industry,” said Fan Xun, vice chairman of the board, executive director and president of CDB Leasing.

“On one hand, the Group will utilize the driving force of favorable policies for industrial development. On the other hand, the uncertainties in the economic and financial environments and the increasing competition in the industry have also imposed higher requirements on leasing companies in terms of business development model, risk prevention and control and other aspects.”


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AustraliaConcerns about the global economy and the risk of a higher exchange rate have taken some of the wind out of the sails of asset finance in Australia.

In the latest set of figures released by the Australian Equipment Lessors Association, new business volumes in general equipment finance were up 1.8% year on year in 2016 to AUD$38.6 billion (2015: AUD$37.9bn). Fleet leasing enjoyed substantially higher growth of 21.4%, but from a lower start point, to account for AUD$5.1bn of additional business (2015: AUD$4.2bn).

Equipment finance industry aggregatesVolume (AUD$bn)

2015 2016

General equipment finance AUD$37.9 AUD$38.6

Fleet leasing AUD$4.2 AUD$5.1

Total equipment finance AUD$42.1 AUD$43.7

Receivables (AUD$bn)

2015 2016

General equipment finance AUD$89.9 AUD$89.7

Source: AELA

Volume 12 months to end December 2016 – AUD$43.7bn

General equipment

Fleet

AUD$38.6 bn

AUD $5.1 bn


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Source: AELA

The AELA calculates that the general equipment finance industry had funded assets worth AUD$89.7 billion by the end of December 2016, although this total does not include fleet leasing. A more granular breakdown of industry statistics indicates that cars and light commercial vehicles account for 40% of the Australian leasing market; trucks and buses for 18%; mining, earthmoving and construction equipment for 12%; agricultural equipment for 7%: manufacturing 4% and EDP/office machines for 4%.

Looking ahead, industry experts do forecast growth, but at relatively low levels of between zero and 5%, with a handful of individual sectors outperforming the market.

Hugh Lander, chief executive officer, BOQ Finance, said, “The construction sector is likely to remain strong given ongoing work in the residential space, as well as substantial engineering-related work. Modest improvement in the wider economy should also see some rise in office equipment financing.”

He forecasts 5% growth for both these sectors, but sees car finance growing at a slower rate, and sees no more than a plateau for truck finance over the next 12 months.

Lander identifies the greatest opportunities exist in arrangements where lessors can add value to their finance offering, whether in terms of service, support or residual value.

Car/light commercials

Trucks, trailers & buses

Mining, earthmoving & construction

Agricultural equipment

EDP/office machines

Manufacturing equipment

Other transport

Other

40%

18%

12%

11%

7%

4%

4%

4%

Receivables end December 2016 – AUD$89.7bn

The construction sector is likely to remain strong given ongoing work in the residential space, as well as substantial engineering-related work.

Hugh Lander


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In the absence of such value added services, large corporates are favoring their senior debt facilities, rather than standalone specialist equipment funding, said John Dennis, managing director, Australian Structured Finance.

The combination of low interest rates plus greater flexibility in pre-payment (the vast majority of asset funding in Australia tends to be fixed rate) explain these strategic finance decisions, while “SMEs continue to utilize asset loan facilities wherever possible,” said Dennis.

With minimal inflation in the general economy, the Reserve Bank of Australia (RBA) has no grounds for raising interest rates, spelling narrow margins in asset finance lending. The one exception to this rule is in the residential property market, where the RBA has encouraged lenders to raise interest rates in order to dampen demand.

Stimulating faster growth in the rest of the economy through fiscal initiatives - a new capital/ investment allowance has been mooted – seems unlikely to work in the wake of long-term low borrowing costs.

“Frankly, if business isn’t already taking advantage of historically low rates, a new tax incentive won’t stimulate investment – nor will the proposed reduction in company tax rates for SMEs,” said Dennis.

Low interest rates have eroded margins, however, which is driving change among lenders. Centralization and consolidation are starting to gather pace as banks seek cost savings and greater consistency in their product offerings.

There is also pressure on banks to offer clients more than ‘vanilla’ debt under low margin asset finance lines. Lenders are actively seeking cross-selling opportunities, and without such prospects the future of equipment finance as a stand alone funding product is in jeopardy, said Dennis.

“It is increasingly an issue in the larger ticket space – particularly with so few larger ticket lessors/ lenders remaining active in the domestic market and most only pursuing investment grade or relationship funding opportunities,” he said.

The heavy exposure of Australian banks to the resources industry (mines and contractors) has dulled their appetite to lend more to the sector, opening opportunities for vendor financiers to gain a toehold in the market and get involved in transactions worth up to and exceeding AUD$100 million.

Higher margins – and higher risk – are available in lending to the fintech (financial technology) sector, where the Australian market has recorded considerable growth.

Ian Elkner, general manager sales and credit, Centrepoint Finance Group, describes the rise of fintech as ‘staggering’, with the Australian Fintech’s Industry Association already boasting a membership of well over 100 start-ups, venture capital funds, hubs and accelerators.

He considers the fintech explosion to be a particular problem for leasing brokers.


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“What Uber has done to taxis is what fintechs want to do with financial services,” said Elkner.

“Fintechs targeting our core client base typically provide unsecured business finance using web-based applications, combined with credit scoring and behavioral history. They are seen by some as being a lot easier to use than traditional financiers. Approval of finance can be in as little as 10 minutes!”

The fintech service may be slick and automated, but it remains to be seen whether a new generation of clients weaned on smartphones and tablets prefer this approach or revert to a more relationship-based style of business.

And while the banks lending to fintechs might be eager for the higher margin business, some of the risks are already coming home to roost. At Australian Structured Finance, Dennis describes some of this fintech business as little better than sub-prime.

“We have seen a few players move from transactions in the sub-AUD$150,000- 250,000 space to underwriting transactions up to AUD$1M over the last year in order to maintain annual growth levels,” he said.

“Almost all of these players are wholesale funded by the Tier One Banks along with their own shareholder funds. As expected, some of these players are now being caught with bad debts due to their target markets and more recently, one (an ASX Listed finance group) had a AUD$3M fraud highlighting the lag between aggressive book growth and the implementation of appropriate backroom systems to support larger scaled business units.”

Dennis forecasts that supply and demand will eventually shave the margins available in fintech lending, leading to a new wave of mergers and acquisitions as the lenders attempt to generate scale.

Indeed, consolidation within the asset finance industry is already having an impact on the sector’s trade bodies.

“The consolidation of the sector and loss of independent non-bank owned financiers has led to a need to restructure/rebrand the various advocacy groups within the market, including the Australian Equipment Lessors Association (proposed to be renamed the Australian Equipment Finance Association); Fleet Lessors Association; the Debtor and Invoice Finance Association; and the Australian Finance Conference (proposed to be renamed the Australian Finance Industry Association),” said Dennis.

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We have seen a few players move from transactions in the sub AUD$150,000-250,000 space to underwriting transactions up to AUD$1M over the last year in order to maintain annual growth levels.

John Dennis


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IndiaA new indirect tax regime in India could prove the making or breaking of the fledgling asset finance industry. Opportunities for lessors ought to be plentiful in an economy forecast by Nomura to grow by more than 7% this year and next, and where the Reserve Bank’s repo rate – at which it lends to banks – is at 6.25%. Indeed, it’s hard to find a set of figures that do not indicate a rapid, upward trajectory for the Indian economy.

The country’s oil demand is where China’s was in 2002, and Goldman Sachs has calculated that India’s GDP per capita of US$1,650 in 2015 was comparable to China in 2005. Even a cursory glance at China’s economic growth over the last decade reveals why so many businesses eye India with optimism.

But leasing companies face a period of uncertainty. As always, the devil is in the detail, and this is still in short supply in relation to how India’s new Goods and Service Tax will be applied to leasing. The indirect taxes currently applied to finance leases are different to those applied to loans, and the draft GST bill is short on detail.

“The bill needs to clarify the position of financial leases and how input credits available will be integrated under the GST regime. The GST regime will have an impact on the leasing industry, but one needs to see whether it will make the position any better for the leasing industry,” said Nidhi Bothra, executive vice president of Vinod Kothari Consultants.

She added that certain state-specific restrictions make leasing unviable in some Indian states, while nationwide lessors have to contend firstly with a perception that leasing is very complex and secondly with a longstanding culture of owning assets.

“The appearance of assets on the financial statements seems to indicate strength in financials,” said Bothra. “Indian entities are not accustomed to the idea of being ‘balance sheet light’.”

The leasing industry and its clients have also had to deal with legal U-turns over which party can claim tax relief on the depreciation of a leased asset; lessor or lessee.

The long-term outlook, however, is reasonably positive, once the tax and product awareness issues are ironed out.

“When these constraints are taken care of, it should help increase penetration levels in the leasing space,” said Bothra.


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She forecasts the market to grow by 5% in 2017, with the medical equipment, IT and renewable energy sectors performing most strongly.

Vehicle finance is already showing the way, with car leasing and auto retail finance tipped by Vinod Kothari Consultants for 10% growth this year, even if their success cannot compensate for the constraints faced by other leasing sectors.

“Auto leasing particularly is doing well in India. Corporate leasing products, where the corporates take cars on lease for employees as part of their remuneration package, is doing well,” said Bothra.

She added that the opportunity to lease high end cars is opening up new customer segments for prestige car manufacturers.

Goldman Sachs cautions, however, that Indian consumers will trade up into brands that offer value and quality rather than an aspirational image.

“In purchasing a car for example, for an Indian consumer, an important input is the brand’s reputation for fuel efficiency,” said the bank.

Auto manufacturers certainly see opportunities in India both to sell and manufacture cars, many of them for export. Ford, General Motors, Suzuki and Tata all have plants in Gujurat, and India’s passenger car exports have grown by 46% over the past five years to reach a record 654,000 units in 2016.

Last year, new car sales in India rose by 8.4%, compared with 2015, to 3.32 million units. If the country is on the same growth trajectory as China, but a decade behind, it’s little wonder that auto manufacturers are so interested.

Domestically, the rapid pace of urbanization has led to traffic congestion and pollution problems, with a National Board for Electric Mobility, chaired by the Secretary of the Department of Heavy Industry, tasked with drawing up guidelines for both the use and manufacture of electric vehicles.

Meanwhile, the Ministry of State for Road Transport and Highways has ambitious targets to build new roads between cities. It aims to construct 41km of new highways per day, although it only achieved 22km per day last year.

Corporate leasing products, where the corporates take cars on lease for employees as part of their remuneration package is doing well.

Nidhi Bothra


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Republic of KoreaThe leasing industry in South Korea slipped back last year, with no sectors of the industry registering growth. Figures from the Credit Finance Association of Korea (CREFIA) reveal leasing acquisition volumes down in every sector of industry and the economy.

Total leasing acquisitions amounted to 121.6 trillion won (US$110 billion), down over 9% on the previous year.

One key risk facing the Korean economy is the mounting household debt. The Asia Development Bank (ADB) calculated the ratio of debt to GDP had accelerated to 91% in the third quarter of 2016, from 74% in late 2008.

As the fifth largest car producing country in the world, the automotive sector plays an important role in Korea. Last year, domestic sales fell by 0.5% to 1,813,7751 units, compared with 1,823,605 in 2015, although sales of domestically manufactured brands (Hyundai, Kia, GM Korea, Renault Samsung and Ssangyong) edged ahead by just 0.6% to 1,588,572 new registrations (2015: 1,579,705), with tax incentives helping to drive up demand in the first-half of the year.

Exports of new cars slipped by 1.1% to 8,890,530 cars units, compared with 8,986,947 units sold in 2015. There are also dark clouds on the horizon as the United States agency in charge of trade policy, the office of the US Trade Representative, announced in March that it is considering a major review of the free-trade agreement between South Korea and the US, a key export market for Hyundai and Kia.

In the longer term, the ADB considers the return of political stability in the republic as likely to pay a mild growth dividend in 2018. The bigger uncertainty involves the actions of the country’s northern neighbor.

One key risk facing the Korean economy is the mounting household debt. The Asia Development Bank calculated the ratio of debt to GDP had accelerated to 91% in the third quarter of 2016, from 74% in late 2008.


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Leasing acquisition volume by year & industry (unit: 100 million won)

2012 2013 2014 2015 2016

Agriculture & Fishing 300 229 300 390 202

Mining 80 249 320 121 93

Manufacturing 31,226 35,489 38,935 37,870 32,751

Construction 3,416 3,209 3,684 3,893 3,102

Wholesale & Retail 9,579 11,324 14,637 18,134 14,199

Hotels & Tourism 516 784 1,351 1,759 1,427

Transport & Storage 3,163 2,849 2,448 2,996 2,235

Communication 1,198 933 852 761 1,051

Financing, Insurance & Business Service

2,648 3,386 4,149 4,629 3,619

Medical Treatment 8,850 9,391 9,628 9,956 8,661

Environmental Industry (Anti-pollution)

129 141 174 218 254

Community & Personal Services

9,992 11,945 14,207 13,569 15,245

Others 31,530 28,138 33,407 39,785 38,789

Total 102,627 108,067 124,092 134,081 121,627

Source: CREFIA

Leasing 2016 (unit: 100 million won)

Finance leasing Application leasing Total

Won Won Won

Contracts volume 80,904 41,450 122,354

Acquisition volume 81,960 38,857 120,817

Acquisition outstanding 81,506 39,173 120,679

Acquisition base by goods

Domestic production 44,002 16,796 60,798

Foreign production 37,958 22,061 60,019

Sub total 81,960 38,857 120,817

Source: CREFIA


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Leasing acquisition volume by year & goods (unit: 100 million Won)

2012 2013 2014 2015 2016

Industry machinery equipment

21,199 21,771 21,327 19,603 16,123

Industry machinery 8,107 7,658 7,163 7,806 6,397

Electrical machinery 215 95 989 135 70

Transportation equipment 12,877 14,018 13,175 11,662 9,656

Transportation equipment 62,886 67,298 83,470 95,598 87,474

Motor vehicles 58,247 64,171 79,288 93,306 85,391

Architect equipment 1,612 1,292 1,762 1,515 1,933

Vessels 2,817 1,763 2,380 777 132

Planes 210 72 6 0 0

Railroad vehicles 0 0 34 0 17

Medical equipment 9,225 9,769 9,246 10,609 9,589

Anti-pollution equipment 0 7 0 4 2

Educational, scientific & technological equipment

5,402 3,739 6,354 5,137 4,185

Office equipment 339 530 582 413 437

Computer 4,035 2,699 3,869 1,981 1,925

Others 1,028 510 1,903 2,743 1,823

Communication equipment 1,276 1,249 1,051 1,577 956

Machinery & equipment for distribution industry

206 343 243 18 5

Others 2,433 3,891 2,401 1,535 3,293

Total 102,627 108,067 124,092 134,081 121,627

Source: CREFIA


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Year-on-year changes in lease transaction volumes, Japan

Source: Japan Leasing Association

JapanAmid a slight decline in the Japan leasing market over the past year, certain sectors bucked the downward trend.

Overall, the total volume of lease transactions in 2016 declined by 2.5% to 50,293 million yen (US$441 million), compared with 2015, and there’s no immediate sign of an upturn. February 2017 was the fifth consecutive month of negative growth, according to the Japan Leasing Association.

Modest increases in the transport (vehicles and ships) and medical equipment sectors, up 0.6% and 3.3% respectively, were insufficient to offset falling business volumes in the information and communications equipment sector (down 3.4%), office equipment (down 4.6%), industry equipment (down 11.6%), factory equipment (down 9.2%) and construction equipment (down 4.4%). Only the physical and chemical equipment markets showed substantial growth, forging ahead by 12.6% year on year.

Others

Commercial and Service equipment

Medical equipment

Transport equipment

Construction equipment

Factory equipment

Industry equipment

Office equipment

Information and Communication equipment

Total

0 10,000 20,000 30,000 40,000 50,000 60,000

100 Million Yen

2015

2016


22

Leasing volume by type of equipment (2016)

Leasing cases Leasing volume (in million yen)

Componentratio (%)

Year-on-year change (%)

Information and communication equipment

669,333 1,546,482.3 30.8 97.4

Computer hardware 423,534 819,231.5 16.3 101.0

Computer software 66,596 344,539.8 6.9 90.4

Telecommunication equipment 179,203 382,711.0 7.6 97.0

Office equipment 329,124 423,441.8 8.4 98.5

Industrial equipment 72,840 556,657.5 11.1 90.1

Factory equipment 6,143 114,042.2 2.3 97.4

Construction equipment 14,290 135,804.9 2.7 98.0

Transport equipment 212,839 660,317.5 13.1 102.3

Automobile 193,138 588,553.3 11.7 101.1

Vessel 120 11,493.7 0.2 586.3

Medical equipment 58,558 253,682.2 5.0 102.0

Commercial and service equipment 282,447 628,076.1 12.5 102.3

Commercial equipment 222,236 415,934.3 8.3 100.2

Others 118,191 706,473.1 14.1 102.3

Physical and chemical equipment 17,370 63,134.7 1.3 116.2

Total 1,763,765 5,024,977.6 100.0 98.7

Source: Japan Leasing Association


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Sri LankaThere is market confidence that Sri Lanka holds good long-term prospects for asset finance, backed by impressive recent growth in the automotive sector.

“We have always believed that, eventually, Sri Lanka will become a major asset finance country in the region,” said Paul Errington, chief executive officer of Hong Kong-based Connaught Finance Investments.

“Since the replacement of Mahinda Rajapaksa as President [in January 2015] there is positive stability in the country with foreign direct investment from China being resumed. Substantial investments are seeing the development of the hospitality industry, renewable energy in biomass and mini hydro plants. Still a source of embarrassment are the two coal-powered power stations financed by China that keep breaking down or being delayed.”

The recent acceleration in the new car market offers evidence of Sri Lanka’s improved economic fortunes. According to the country’s Ministry of Transport & Civil Aviation, the car parc has risen from 499,714 vehicles in 2012 to 672,502 in 2015, a rise of 35%, and sales are accelerating.

In 2014, 38,780 new cars were registered, and this figure almost trebled within 12 months to 105,628 new registrations in 2015.

Substantial investments are seeing the development of the hospitality industry, renewable energy in biomass and mini hydro plants.

Paul Errington


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SummaryAs this report shows, the Asia Pacific region is a diverse mixture of economies at very different stages of development.

However, what all the countries have in common is the growth opportunities they present to knowledgeable investors.

While each country in the region has its own set of economic and social influences, there are underlying opportunities for expansion in every market.

Companies may target the high levels of growth available in China, where the economy is accelerating rapidly, or the more modest, lower risk gains available in developed economies such as Australia or Japan.

There are also a wealth of new opportunities in emerging markets, ranging from Bangladesh to Sri Lanka and Vietnam.

Even higher risk economies, such as Laos, Myanmar and Nepal, offer the potential for substantial asset finance growth.

With potential gains of more than 10% in many markets, the Asia Pacific region is an enticing prospect for the industry.

But in each nation, the key factor that will underpin the achievement of these growth projections is the need for detailed market knowledge and an ability to adapt to changing market requirements.

Suppliers will have to respond to global influences and local developments, ranging from political changes to significant economic changes in what can be fast-paced economies.

With the right planning and a strategic approach, the Asia Pacific region has the potential to drive growth in the asset and auto finance industries for years to come.

The dash for digital.

�anks for reading! For more great industry news and

insights visit whiteclarkegroup.com

End-to-end auto and asset finance software

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