Management

of Financial
Services
Semester Seven
Department of Finance

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Management of Financial Services

PART-I: LEASE PART-II:

FINANCE (40%) INVESTMENT BANKING
(60%)
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 Part-I: Lease Finance (40%)

Chapter 1: Origin, Concept of leasing and scope of operations,

Business of leasing and its management, and Leasing Business in
Banglades
Chapter 2: Issues of leasing: accounting issues, tax issues,
regulatory issues
Chapter 3: Economics of lease financing, financial analysis for
lease transaction: lessee’s perspective- Bye or lease decision,
lessor’s perspective- Investment decision, pricing of lease facility
and fixation of lease rental.
Chapter 4: Hire purchase finance-definition–Hire purchase Vs
installment payment–Rights of Hire-Rate of interest–Methods of
interest calculation–Hire purchase Act–Legal and tax aspects-
Accounting and Financial Valuation.
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PART-II: INVESTMENT BANKING
(60%)
Chapter 5: Introduction to investment banking:
Chapter 6: Primary Market Making
Chapter 7: Secondary Market making (dealer and broker
service)
Chapter 8: Structured Finance
Chapter 9: Other aspects: Private Equity, Investment
Management, Advisory services
Chapter 10: Investment Banking in Bangladesh
Chapter 11: Venture Capital Financing
Chapter 12: CORPORATE VENTURING

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Agenda: Chapter 1

• Origin
• Concept of leasing
• Scope of leasing operations
• Business of leasing and its management
• Leasing Business in Bangladesh.

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 What is Lease?

• The Lease may be defined as a contractual arrangement in

which a party owning an asset provides the asset for use to
another, the right to use the assets to the user over a certain
period of time, for consideration in the form of periodic
payment, with or without further payment.
• Another way, Lease is a contract where a party being the
owner (lessor) of an asset (leased asset) provides the asset for
use by the Lessee at a consideration (rentals).

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What is the definition of
leasing in a finance context?
A. Leasing in finance is a method of investing where
the investor purchases an asset and then lets it
appreciate over time.
B. In finance, leasing is the act of buying an asset
and then selling it to a consumer at a higher price.
C. Leasing is like a rental agreement. The lessor
(usually a leasing company or financial institution)
owns an asset and the lessee (an individual,
company, or organisation) pays a regular fee to use
this asset over a specific period.
D. In a financial context, leasing refers to a bank
providing a loan to a consumer for a specific asset.
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Origin of leasing
• Leasing was prevalent during the ancient
Sumerian and Greek civilizations, where the
leasing of land, agricultural implements,
animal mines and ships took place.
• In the 19th century when the railroad
manufacturers in the U.S.A. resorted to the
leasing of rail cars and locomotives.
• In 1973 when the first leasing company
was appropriately named First Leasing. This
industry, however, remained relegated the
early eighties.

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What is subleasing and
when can it occur?
• Subleasing is when the original lessee leases the
asset they leased from the lessor to a third
party, thereby acting as a lessor.
• This can happen only if the original lease
agreement allows subleasing.
• Subleasing occurs when a lessee decides to
lease an additional asset from the lessor. It only
happens when the initial lease has expired.

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Leasing in Business
Studies
• In Business Studies, leasing is an essential
concept that entails the practice of using
an asset for a defined period and paying
for its use over time.
• It's a widespread financial strategy for
businesses, especially for acquiring
property or expensive machinery, without
the financial burden of purchasing them
outright.

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Advantages of
Leasing in Business
• Reduced Initial Expense
• Flexible Terms
• Hassle-free Maintenance
• Easier Upgrade

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 Disadvantages of
Leasing in Business

 Total Cost
 Lack of Ownership
 Potential for Additional Costs

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 • Operating Lease: In an operating lease,
the lessor retains the asset's ownership
while the lessee gets the right to use it
for a short period compared to the
Analyzing asset's life. At the end of the lease, the
Two Types asset is returned to the lessor.
of Lease • Finance Lease: A finance lease, also
known as a capital lease, transfers the
Financing risks and rewards associated with
ownership from the lessor to the lessee.
It often includes a clause for the
transfer of ownership to the lessee at
the end of the lease term.

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Components of a
Lease Agreement
• Identification of Parties
• Description of the Leased Asset
• Lease Term
• Rent Payment Details
• Maintenance and Repair
• Insurance
• Options

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Management of
Corporate Leasing
• Centralizing leasing data: It's critical to have all
leasing data in a central location that is easily
accessible. This includes lease terms, payment
schedules, renewal dates, and any other relevant
details.
• Regular monitoring: Lease agreements must be
regularly reviewed and monitored to track upcoming
renewal dates or rent increases. Any non-
compliance issues must be addressed proactively to
avoid penalties.
• Optimisation: Look for opportunities to optimise
leasing costs. For example, this could include
renegotiating terms, consolidating leases or
exploring alternatives.
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 Management of Sub
Leasing
 Securing consent: Before sub-leasing the leased
property, obtain consent from the lessor, lest you
violate the terms of your primary lease.
 Setting clear terms: The scope, obligations,
responsibilities, and restrictions related to the
sublease should be clearly agreed upon and
articulated in the sublease agreement.
 Monitoring sub-lease agreements: Monitor the
performance of sub-lease agreements to ensure that
sub-lessees comply with their terms. Sub-lease
agreement defaults could impact the primary lease.

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 Leases scope overview
• Some arrangements are clearly within the scope of lease
accounting, for example, a legal form lease that provides an
explicit contractual right to use a building for a specified
period of time in exchange for consideration.
• However, the right to use an asset can also be conveyed
through arrangements that are not leases in legal form.
• For example, a hospital may execute an arrangement to
purchase consumables and services from a vendor through
an arrangement that entitles the hospital to receive free
medical equipment for a period of time. Although not a lease
in legal form, the rights to the medical equipment may be
within the scope of lease accounting.
• ASC 842 specifically excludes arrangements for the right to
use a natural resource and arrangements that transfer the
right to use certain assets other than property, plant, or
equipment from its scope.
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 • A fee or cost will
be involved.
• Whether it’s for
establishing a loan
-Types of revenue
How Do or paying interest, models
companies must
Leasing explore the finance • Advertisement-
based
Companies options available to
• Affiliate
them and ensure
Make the fees they’re • Commission-
Money? paying are based
justified. • Donation
• Structuring • Markup
revenue models • Interest
that ensure the
finance agreements • Subscription
(leases) are
mutually beneficial
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How Do Leasing Companies Make
Money?

• No matter what financial or lending product an

organisation chooses, a fee or cost will be involved.
• Whether it’s for establishing a loan or paying
interest, companies must explore the finance
options available to them and ensure the fees they’re
paying are justified.
• Structuring revenue models that ensure the finance
agreements (leases) are mutually beneficial —

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 Leasing companies revenue
streams
• With operating lease models make money through three streams:
• lease establishment fees: A lessor invests upfront in the devices
they lease back to customers, and they legally own them. Lessors
can charge a small establishment fee to set up a lease contract.
• Re-selling returned assets on the secondary market: However,
the majority of the revenue that leasing companies generate is
through on-selling the ex-lease devices from their customer (once
they are returned) in a secondary market at current market value.
This is called the residual value.
• Extended lease payments: If the lessee wishes to extend their
lease beyond the original lease term, they can often do so by re-
negotiating extended lease payments with the lessor.
Alternatively, the customer can negotiate a fair market value price
to buy the devices outright from the lessor instead of returning
them.
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Background of Leasing in
Bangladesh
• Lease financing was first introduced in Bangladesh in the early
1980s.
• Industrial Development Leasing Company of Bangladesh Ltd.
(IDLC), the first leasing company of the country, was established in
1986 under the regulatory framework of Bangladesh Bank.
• Another leasing firm, the UNITED LEASING COMPANY Ltd. started
its operations in 1989. The number of leasing companies grew
quickly after 1994 and, by the year 2000, rose to 16.
• Currently, there are about 25 leasing companies operating in
Bangladesh. Among them, only one of them, Infrastructure
Development Company Limited (IDCOL) is government owned and
the rest of them are privately owned companies.

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Thanks!
Question?

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