Last Updated on 22/12/2023
As we step into the new year, the Turkish leasing and factoring sectors find themselves at a crossroads. Experts at Meo Consultants offer insights that suggest a potential slowdown in the rapid growth and profitability that characterized these sectors throughout the course of 2023. Projections point to a moderation, influenced by factors such as an expected GDP slowdown in 2024 and an uptick in the central bank policy rate since 2H23.
Key Factors of Turkish Leasing and Factoring Sectors Impact on 2024
A significant factor influencing the anticipated moderation is the central bank’s policy rate increase. This move is expected to have a multifaceted impact, including dampening the demand for leasing and factoring products. As a result, the profitability of both sectors may face challenges, representing a departure from the robust growth experienced in the previous year.
To understand the potential shifts in the coming year, it’s crucial to look back at the factors that propelled the leasing and factoring sectors to exceptional growth in 2023. Business origination witnessed an extraordinary surge in 9M23, with leasing recording a staggering 74% growth, and factoring not far behind at 77%. High inflation played a role, along with regulatory easing, improvements in the operating environment, and a sustained investment appetite.
Nominal profitability, especially in the factoring sector, remained resilient during this period, painting a picture of a robust and thriving industry.
Low Non-Performing Loan Ratios and Impending Challenges
One of the strengths of both the leasing and factoring sectors has been their historically low non-performing loan ratios. However, Meo Consultants predicts impending challenges in 2024. The economic slowdown and the aftermath of rapid growth are likely to lead to increased impairment charges. This foresight prompts a cautious outlook, signaling potential hurdles for both sectors.
Simply put, companies that lease things might feel a squeeze on their profits in the short term because of changes in how they price their services. At the same time, businesses involved in factoring may have to deal with lower business volumes and manage costs that are tied to the rising prices of goods and services.
Foreign-Exchange Risk: A Divergence Between Leasing and Factoring Sectors
Examining the nuances of risk, it becomes evident that the leasing sector, while actively reducing its foreign-currency exposure, still grapples with foreign-exchange risk. On the other hand, the factoring sector, despite a decline in volumes, faces challenges in adjusting fixed costs to inflation. This divergence underscores the unique dynamics of each sector, with leasing companies exposed to SMEs presenting higher asset-quality risks.
A closer look at the financial landscape reveals that leverage in both the leasing and factoring sectors has benefited from robust internal capital generation in 9M23. Commercial banks continue to play a pivotal role as primary funding providers. Looking ahead, a more stable environment is likely to improve funding conditions, although costs are likely to remain elevated.
While funding and liquidity risks are manageable, factoring companies stand out for their ability to respond swiftly in severe scenarios. Additionally, captive leasing sectors can lean on the support of parent banks, adding a layer of stability.
In conclusion, as the Turkish leasing and factoring sectors navigate the uncertainties of the upcoming year, stakeholders must be prepared to make strategic adjustments. With growth potentially moderating and challenges on the horizon, the ability to adapt and innovate will be crucial for maintaining stability and resilience in the face of evolving economic conditions.
