Finance Leasing and ARMA Forecasting: Evidence from Albania

Ten financial institutions are offering finance leasing-loans in Albania. Even though finance leasing is a potential financing resource for small and medium enterprises in Albania (which are on average 95% of national enterprises), the value of finance leasing is one thousand times smaller than other forms of medium and long-term loans or real estate loans. Developing of finance leasing is a challenge for the progress of the financial sector, and untapped potential as well. Currently, the finance leasing portfolio is dominated by financing for personal vehicles and work-vehicles, therefore diversification of leasing products is an immediate need of consumers. This study analyzes the value of finance leasing in Albania with time series from 2008 to 2020 (with quarterly frequency). The methodology applied for data processing is the co-integration method of finance leasing and other forms of medium-term and long-term financing. Also, the ARMA method is used to forecast the value of finance leasing. We found out that there is no long-run relationship between finance leasing with medium and long-term loans. Therefore, econometric tests suggest optimal forecasting ARMA (1,1) modeling. The parameters of ARMA model are positive statistically significant with autocorrelation AR (1) and negative statistically significant with the moving average MA (1), and forecasting values have a short-run equilibrium with a wide interval.