Present scenario

Leasing enjoys the privilege of being regarded as an Islamic mode of financing and conforms to Islamic principles. Leasing, as the part of financial institutions, plays an imperative role in the countries economy development and growth and contributes a major share in the GDP by supporting in channelizing of funds. As the overall economic scenario of the country is grim and depressed since the last few years and passing through a phase having multiple uncertainties and threats of further economic sanctions, hence, it also adversely effected the performance and growth of the leasing sector considering the fact that the growth and sustainability of leasing business is directly variable with the performance of other sectors. Presently leasing companies are facing with issues that are not pertaining to the aspects directly governing leasing companies. The intrusion by commercial banks in the leasing sector, lack of volume and uncollectibility of receivables are the factors hampering the performance of leasing companies. Banks and the DFIs find leasing business very attractive and with an edge in resource potential and cost, these institutions poise a real threat to the leasing companies. Lets have a look at present status of leasing companies:

No of leasing companies
Years No of leasing companies 2007 17 2008 15 2009 11 2010 09

No of Leasing Companies
20 15 10 5 0 2007 2008 2009 2010

The numbers of leasing companies are decreasing year to year and according to financial stability review of NBFIs by SBP, there are only 9 leasing companies which are providing the services in 2010 .

Number of licenses held by leasing companies

Years No of leasing companies 2007 19 2008 18 2009 15 2010 14

No of Leasing Companies
20 15 10 5 0 2007 2008 2009 2010

There is a direct relation exist between the number of companies and the number of licenses which means that as the number of companies decrease, the number of licenses also decrease and these licenses were renewed after one year but now SECP has changed this period from one year to three years by making the amendments in the "Non-banking Finance Companies (Establishment and Regulation) Rules, 2003" to solve the on-going concern issue raised by stakeholders and to save the renewal cost and time.

Minimum Equity Requirements for Leasing Companies

Years 2008 2009 350 2010 500 2011 700 Minimum Equity 200 Requirements(millions)

Minimum Equity Requirements

1000 500 0 2008 2009 2010 2011

In FY09, there was only one company which has the capital more than Rs. 2.0 Billion. Therefore, there is a chance of mergers and acquisitions of leasing companies with commercial banks and investment banks due to the non-compliance with MER.

Financial Ratios of Leasing Companies

Profit After Tax / Total Assets
Year Profit after Tax / Total Assets 2008 0.11 2009 -0.79 2010 -0.25

0.5 0

Profit after Tax / Total Assets

2008 2009 2010

-0.5 -1

Profit After Tax / Total Equity

Year Profit after Tax / Total Equity 2008 0.62 2009 -7.57 2010 -4.91

Profit after Tax / Total Equity

5 0 2008 -5 -10 2009 2010

Dividend / Profit After Tax

Year Dividend / Profit after tax 2008 3.29 2009 -0.62 2010 0.58

Dividend / Profit after tax

4 2 0 2008 -2 2009 2010

Total Borrowings / Total Assets

Year Total Borrowings / Total Assets 2008 3.64 2009 2.41 2010 2.37

Total Borrowings / Total Assets

4 3 2 1 0 2008 2009 2010

Total Borrowings / Total Equity

Year Total Borrowings / Total Equity 2008 18.26 2009 29.45 2010 24.51

Total Borrowings / Total Equity

40 30 20 10 0 2008 2009 2010

Current.Assets / Current Liabilities

Year Current.Assets / Current Liabilities 2008 11.07 2009 11.52 2010 14.68

Current.Assets / Current Liabilities

20 0 2008 2009 2010

Total Incomes / Total Expenses

Year Total Incomes / Total Expenses 2008 10.41 2009 5.83 2010 9.36

Total Incomes / Total Expenses

20 10 0 2008 2009 2010

Comparative analyses of year 2008 and 2009 shows the decrease in performance of leasing companies in 2009 because all the ratios are declining. The declining trend in 2009 and ratios relating to profit after tax has turned negative due to the loss after tax in 2009 and the key performance indicators of leasing companies compiled by the SBP also showed the same trend in 2009 and this decrease in profitability is mainly due to the high financial expenses, competition with banking sector and high provisioning cost, but in 2010 this situation is changing and the ratios show the positive results as compared to the 2009. From above ratios we can say that the performance of leasing companies in 2010 is better than the performance in 2009. The ratios regarding 2010 are showing positive change from 2009 but the performance was deteriorated in 2009.