Leasing, as a financial instrument, has gained widespread acceptance in the financial sector of Armenia in recent years. For many, it has become a flexible and convenient option for acquiring fixed assets.

In his interview with Banks.am, the Deputy Head of Corporate Business Lending Department at AraratBank, Vahan Gharibyan, described the renewed leasing service of the bank and spoke about how to benefit from the service and to acquire energy-efficient equipment.

Renewed leasing service

The leasing service was launched by AraratBank in 2011. We provided the first lease 13 years ago and have been providing it ever since. However, from 2011 to 2022, the leasing service played only a passive role. The service was operated by one employee who combined his duties with the provision of leasing products. This explains the low share of leasing in the credit portfolio and only a small number of lease customers during this period. Following the restart and revitalization of the leasing service, the bank increased the share of leasing in the portfolio during the past year, reaching a point never achieved during its multi-year provision of lease products.  

A reconsideration of approaches to leasing has consistently been placed on the bank’s agenda. In 2022, following the joint debate, the Executive Board and the Board of Directors of the bank decided to give a fresh impetus to leasing and build a more institutional framework, which will enable to move from a mere provision of a leasing product to placing leasing in a central position.

Several reasons exist in this regard. First, the legislative framework has seen considerable improvements, greatly contributed by the Lessors’ Association of Armenia, which initiated a number of measures aimed at lobbying legislative changes and further increasing the degree of protection of financial institutions in the provision of leasing. In brief, every possible measure has been taken to afford the same protection in the provision of leasing as in lending. The Lessors’ Association played a key role in this period, and the changes it brought to the market also contributed to our decision to restart the leasing facility.

Another circumstance contributing to the restart was the already available experience in the market and several vibrant structures and specialists, creating opportunities for participation in relevant training programs. In parallel, subsidy programs were launched by the state that sought to encourage more entrepreneurs to use leasing services.

In September 2022, we joined the Lessors’ Association of Armenia, and a few months later, a regularly staffed leasing department was set up in the bank.

Benefits of the bank and the customer

Leasing brings a number of benefits for both the bank and the customer. From the bank’s perspective, the transparency and clear purpose of the transaction are the welcome benefits. In the lending process, after the loan is provided, the relevant department of the bank controls its intended use, which requires additional resources and time. The opposite takes place in the case of leasing. Since the object of the lease is acquired by the financial institution, in this case by the bank, the question of the non-intended use becomes irrelevant. And here the bank saves both time and resources. The fact that the bank acquires the property allows to win more control over the entire process.

The entry of the bank to the leasing market opens possibilities to reach new customers. The share of trading companies in the bank’s credit portfolio is quite large, and since leasing is the acquisition of a fixed asset, manufacturing companies are likely to be among the primary users of the leasing facility. In other words, leasing allows us to further diversify credit investments.

The launch of the leasing service brings us new opportunities for cooperation with financial foundations. The bank has an extensive list of international partners and years of experience of cooperation. We have partners providing funds intended for leasing, which is a great opportunity to attract and invest targeted funds in Armenia’s leasing market.

The major advantage for the customer is the business financing without pledging assets. Owning 10% or 20% of the lease object and making monthly lease payments, the customer gets the right to use the property. Small and medium enterprises, often lacking sufficient assets to use as collateral, get the opportunity to benefit from leasing with small investments, fostering business development and increasing income.

Leasing also allows minimizing transactions risks for customers. When one of our customers wished to buy equipment from China, we carefully examined the supplier company and identified it as not fully reliable, because it was recently set up, lacked experience and required a 100% advance payment. We recommended finding another supplier. There may be other different risks related to the transportation of lease objects, not considered by the potential customer. We assess these risks and apply various insurance instruments to keep them contained.

Green strategy

With green lending as one of its major strategic strands, AraratBank started investing in green economy as early as 2012, signing a financing agreement with the Green for Growth Fund aimed at energy saving, as restated by us at the recent annual conference on Sustainable Development and ESG: Global Agenda, Local Needs held at the Marriott Hotel. Renewable energy projects, energy-efficient loans, equipment leasing also satisfies the green lending criteria.

The leasing facility helps us increase the share of energy efficient investments in our total loan portfolio.
Currently, the bank increasingly focuses on the financing of legal entities for the acquisition of solar farms, electric cars, new energy-efficient production equipment.

Arpi Jilavyan

The article was prepared in cooperation with the Lessors’ Association of Armenia