As the eurozone crisis has played out in news reports
across the continent, Germany has been positioned as the immutable
strongman of the economic area. Yet, as Leasing Life investigates the state
of German leasing, we discover the economy is not without its
challenges.
Liquidity is a key concern in Germany, Thomas Stahl,
country manager for Germany at De Lage Landen, told Leasing
Life.
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“In Germany, we see challenges in two areas.
First there is a lack of liquidity in the market. Next to that, we
are more and more faced with shortages in refinancing,” Stahl
said.
“Of course, the German market is very much
affected by the overall European debt crisis, just like every other
European country. It is the cause for low investments due to lack
of financial resources, and [most importantly], the lack of
trust.”
Jürgen Mossakowski, chief executive of
independent IT lessor CHG Meridian, added that sources of funding
for smaller leasing companies and those without the support of a
parent company are becoming increasingly rare.
“We have a sound funding base for our future
operations, and that’s something that our customers value,” he
said.
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By GlobalData“Because we are an international organisation,
however, we know that there are many companies in other countries
that are encountering much greater difficulties in this
respect.”
Even captive funder Cisco Capital, which has
the support of multinational computing giant Cisco behind it, is
considering looking beyond the realm of parent company cash to fund
its German operations.
“As a leasing captive of a manufacturer we are
currently using the cash of Cisco through intercompany loans, [but]
this may change and we may seek after external funds,” Hans-Joachim
Wörn, business development manager at Cisco Capital in Germany,
said.
The liquidity issue has led to a search for
alternative funding resources among all types of leasing firm in
Germany, according to Jochen Jehmlich, mananging director of
Société Générale Equipment Finance in Germany.
“There is a trend in Germany for lessors to
look for a more diverse funding base,” he told Leasing Life.
SGEF Germany itself has turned to the
Landesbanken, the investment arms of the German public savings
banks, which allows it to draw cheaper funding which it can then
pass on to its mittelstand, or SME, customers, said Jehmich.
Other lessors have established their own
deposit business like independent IT lessor Grenkeleasing which
bought its own bank in 2009 to address what it viewed has a coming
refinancing crisis.
“It is a trend which will continue,” adds
Jehmlich, “because there is a feeling in the lessor community,
especially after 2009, you are more stable if you have more sources
of funding.”
Regulation
issues
One reason behind a potential funding squeeze in leasing is
the impending Basel III regulation.
“The leasing sector is mulling the
ramifications of Basel III, and the consequences that the limited
availability of credit could have both for lessors and leasing
customers,” Martin Mudersbach, president of Germany’s leasing
association, the Bundesverband Deutscher Leasing-Unternehmen (BDL)
said.
DLL’s Stahl agreed German companies are
starting to experience liquity issues coupled with higher credit
rates from their banks.
“This is where the Basel III effects are
becoming visible. The result is that leasing is more and more
considered as a preferred way of financing,” he added.
Kai-Otto Landwehr, head of commercial finance
at Siemens Financial Services (SFS) Germany, concurred.
“Alternative finance, whether factoring or
leasing, will become stronger as regulation and cash requirements
become more of an issue. The environment is changing rather than
the industry.
“Small businesses especially cannot afford to
fund assets. I think leasing will become more important and the
concentration of business will be higher,” he said.
The implementation of Basel III is not all good
news for leasing in the German market, however. Rich Green,
president of CIT Europe, told Leasing Life, while leasing is CIT’s
core business, he expects some bank-owned lessors to shrink their
business as a result of regulation.
“We are seeing some questions about the effect
of Basel III and the potential impact for banks and bank-owned
finance companies,” he said.
“Local banks and leasing companies are focusing
on their core business and reducing their leasing activity,” he
added.
Regulations set out by the German Federal Financial
Supervisory Authority (BaFin) have also presented problems, Cisco’s
Wörn said.
“The BaFin regulations since 2009 have raised a
couple of administrative burdens that affect us by adding more
resource and supervision and compliance-matters to our daily
lives,” he said.
The regulatory burden has already had a
negative impact on some small lessors in the German market, said
SGEF’s Jehmich, with some scaling back and starting to operate more
as brokers. He added, however, this would not lead to consolidation
of the leasing landscape.
“The German leasing industry always expects a
strong consolidation but still it is quite diverse and has a lot of
lessors compared to other countries where the market is much more
concentrated,” he said.
Valuable reputation
The
diversity of the market may, in part, be because leasing in Germany
continues to. Smaller companies with fewer than 20 employees
[already] have a more positive view on leasing, while large
companies are looking to increase their use of leasing,” he
said.
The figures Stahl referred to come from a poll
carried out by TNS Infratest Financial Research in March and April
last year which was commissioned by the BDL.
“The survey showed that smaller companies in
particular were more likely to give leasing serious consideration
than in earlier years,” said BDL president Mudersbach.
The survey found 76% of all companies with 20
or fewer employees said they would routinely give leasing
consideration as an investment option while in the previous survey,
conducted in 2007, only 68% said that was the case.
“In addition,” added Mudersbach, “almost four
out of five companies in Germany (78 percent) indicated that,
regardless of their size, they would consider leasing as a means of
financing an investment.”
CHG’s Mossakowski agrees the increase in the
use of leasing in Germany in the wake of the financial crisis, is
not related to the size of a company.
“Leasing invariably becomes more important when
customers need to find other forms of finance as an alternative to
conventional loans,” he said.
“This has nothing to do with the size of the
company. The significance of leasing has grown considerably over
the past few decades. This is partly due to the service provided
with each leasing agreement.”
Bank loans and company cash are still the most
commonly used sources of funding for German companies, Stahl said,
but as the availability of both remains scarce in the country and
across Europe, leasing continues to appear attractive.
In terms of external funding sources, according
to the BDL, leasing is more or less on a par with traditional
credit, at 48 percent and 52 percent of the market
respectively.
“Leasing has no negative image at all in
Germany,” said SGEF’s Jehmlich, “it is seen as state-of-the-art.
Even in some industries, in which 10 years ago it was still weak,
leasing has now grown to more significant levels.”
One reason for the continued growth of leasing
is the way players across the market have sought to present the
leasing option to businesses in increasingly comprehensive services
packages.
“We develop compelling solutions for machines,
equipment and more. Especially for medium-sized companies, the
financing concepts of Commerz Real represent an alternative to
classic loan financing,” Frank-Rainer Moll, head of leasing and
structured investments at Commerz Real said.
Leasing providers must also be prepared to tout the
benefits of their product to their German customers wherever
possible – and there are, according to Stahl, many such benefits to
be put forward.
“A company’s liquidity position stays strong,
resulting in extra investment opportunities. The costs for leasing
are also more spread over the term of the leasing contract, and at
the end, the user can choose to return the asset,” he said.
“This freedom also results in possibilities to
replace or upgrade equipment during the term of the contract, even
including maintenance and services. And the choice between
on-balance and off-balance financing can also be attractive for
customers.”
Although awareness of leasing has increased in
recent years, there is, however, a certain disparity in appetite
for its use.
“The appetite for leasing still varies
significantly depending on the type of assets financed and the
decision chain within the customer’s organisation,” Cédric
Fourrier, head of the technology solutions business line, at BNP
Paribas Leasing Solutions in Germany, said.
“For instance, within the office and IT
equipment markets, covered by the technology solutions business
unit of BNP Paribas Leasing Solutions, the same reseller will
successfully sell 90 percent of its hardware in office equipment
through leasing but only 5% in IT.”
SFS head Landwehr agreed leasing in Germany has
strong reputation, especially among the mittelstand and in SFS
specialist areas of IT and healthcare but added these are areas
where leasing has been traditionally strong.
He said the current appetite for leasing
depends on an industry’s historic use of finance.
“In the car market, for example, leasing is
normal business; it is the normal way to fund. It is the same in
healthcare. Assets which are more traditionally funded by lease
continue to be funded this way,” he said.
Heavy industry and infrastructure, however, use
leasing less, he said, because they have traditionally been funded
by bank loans and company capital and habits can be hard to
change.
The legal and tax environment can be an
obstacle too, he added.
While leasing has undoubtedly grown in German
and the country enjoys the largest leasing market in Europe,
according to the latest Leaseurope figures, the industry still
suffers from lack of public awareness, said SGEF’s Jehmlich.
Jehmlich suggested, because the industry
employs fewer people, relative to the billions in investment Euros
it manages, than other financial industries it often fails to
figure in the European news agenda.
“The leasing industry is, compared to other
industries, like a sleeping giant,” he said.
2012 and
beyond
Regardless of discrepancies across different
industries, the German leasing companies of this sleeping giant got
off to a good start in 2012, according to Mudersbach, who added the
BDL expects further growth in the current year, although at a
slower rate than in 2011.
There is, nevertheless, still a certain amount
of volatility to contend with in the German market, said DLL’s
Stahl.
“The forecast for 2012 is slightly optimistic,
but also still cautious. The market development in Germany depends
on various factors, on which we cannot [comment] yet,” Stahl
said.
“Macroeconomic developments like the Euro
crises and higher credit rates will affect the investment climate
heavily. We can expect that some financial solutions providers will
need to react on these developments by following very cautious
strategies,” he added.
This means, therefore, that some leasing
companies may face a loss of trust among their customers in the mid
to long term.
On top of this, some barriers to entry do exist
for companies seeking to enter into leasing agreements in Germany,
as well as certain obstacles to funding for lessors themselves.
“A high number of leasing companies share the
market in Germany. The financial crisis has significantly reduced
the sources of funding for these leasing companies in the last few
years, and increased the gap between small and big leasing
companies,” BNP Paribas’ Fourrier said.
“Many banks have stopped funding the activity
of leasing companies, which need to find new refinancing sources,
in a context of increasing cost of funds.”
These constraints, he added, have begun to lead
to a concentration of the activity among the biggest leasing
companies, while some of the small companies have begun to
disappear from the German market altogether.
From a consumer perspective, German small and
medium-sized businesses must also be willing to reorganise the
financing of their entire portfolio of assets, at least in IT, if
they are to secure a deal that will offer the maximum benefit.
“There is not usually much point in agreeing
partial funding arrangements that are merely cosmetic,” CHG’s
Mossakowski said.
“But totally reorganising the financing of IT
portfolios yields more than just financial benefits. Because all IT
equipment is centrally registered, administrators know exactly what
devices are available,” he added.
Challenges aside, new business volumes in leasing still
represented about 20 percent of all new investments in Germany in
2011, Rudolf Buenten, head of the equipment and logistics solutions
business line, also at BNP Paribas Leasing Solutions in Germany,
said.
“The volumes increased by 11.8 percent compared
to 2010,” Buenten said.
“Passenger cars and commercial vehicles still
hold the lion’s share in terms of volumes, [accounting] for 66% of
total leasing.”
Larger players in the German and European
markets, including captives and bank owned leasing companies such
as BNP Paribas Leasing Solutions, have been able to gain a
competitive advantage in terms of both availability and cost of
funds, Fourrier added.
“BNP Paribas Leasing Solutions managed a very
good year 2011 with a 22% increase in new business volume,” he
said.
“At the same time, leasing solutions have
becoming more and more popular among banks and investors over the
last 18 months, especially in the traditional markets covered by
BNP Paribas Leasing Solutions.”
Jehmlich, managing director of BNP Paribas’
French-owned rival SGEF, told Leasing Life 2012 started reasonably
well after a dip towards the end of 2011.
“If we look now at the first two months of
2012, there is a strong amount of finance being done. I’m not sure
it is stronger than 2011, however. After the quarter slowdown we
can see the economy picking up again,” he said.
Whether the economy is picking up or not,
SGEF’s strategy for the year is safe rather than ambitious.
“Our strategy is conservative in growth with a
focus more on profitability – something you will see with a lot of
bank-owned lessors.”
Representing the manufacturer-owned lessors,
Landwehr of SFS is also fairly conservative in his outlook.
“There is some reluctance to invest so growth
will remain fairly flat,” he said.
SFS, which begins its fiscal year in September,
has seen a flat quarter one and quarter two, said Landwehr, but
added he expects to see that pick up in quarter three and four
which is a normal pattern.
More optimistically than his bank-owned rivals,
however, SFS commercial finance does have growth strategies and,
notwithstanding the spectre of the eurozone crisis, Landwehr is not
worried.
“I wouldn’t be CEO if I was worried,” he said.
“The market this year will be challenging as always but we are
looking forward to facing the challenges.
“Leasing will always be good product for
businesses which need to innovate and want to grow,” he added.
