Chapter 15 - Lease Financing Risk and Control in Emerging Markets

Abstract

This chapter reviews application of lease financing as a bank credit product in emerging markets. The review builds on analysis of types, features, and risks of leases and highlights implications of lease variants and applicable risk control measures. It defines conditions that determine ownership of leased assets at the end of a lease and establishes why and how those conditions are built into the structure, types, and terms of leases. This implies that leases operate largely as conditional transactions. The three ways in which bank lending connects with leasing are investigated to underscore the roles of banks in a leasing transaction—as a lessor or investor, financier, and financier cum investor under a sale and leaseback arrangement. The chapter explains why and how the three situations are treated differently in a bank's books of accounts—highlighting, in so doing, the tax and balance sheet management implications of the practices.