New leasing regulations in Germany are expected to force
the closure of many small lessor firms. In a market dominated by
such family-run organisations, the consequences for the industry
are likely to be far-reaching. Fred Crawley reports.
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Hundreds of small German leasing
companies face serious trouble this year, as tough new regulations
and a continuing refinancing crisis combine to create a ‘perfect
storm’ among the ranks of Mittelstand lessors.
From an international viewpoint, German
leasing would seem to be dominated by a handful of very large,
international players – the likes of Deutsche Leasing, Siemens
Financial Services, big-ticket experts such as KGAL, and captive
finance giants like Volkswagen Financial Services.
In fact, some 75 percent of the German Leasing
Association’s (BDL) 190 members have fewer than 50 members of
staff, with half of them possessing fewer than 15. Outside of the
BDL, there are hundreds of tiny leasing firms, run either by
families or sole traders.
Although companies with 50-plus employees
account for the great majority of leasing in Germany by volume, the
large number of small lessors play a vital role in raising
awareness of asset finance as a useful funding method.
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By GlobalDataAbundance of small
funders
These are the Mittelstand leasing companies,
named after the vast swathe of mostly family-run SMEs that employ
around 70 percent of all private sector workers in Germany.
The reason for this abundance of small funders
is that, as Deutsche Leasing’s Rüdiger Von Fölkersamb recently
commented, Germany was for a long time a “paradise” for starting up
leasing companies.
Budding asset financiers needed only around
€25,000 of initial capital to enter business, allowing a
proliferation of small lenders to spring up and provide commercial
finance within small communities.
Now, however, as a result of the recent
‘light’ banking regulation imposed on the German financial services
industry, lessors of all sizes must submit comprehensive risk
management information (MaRisk) to German regulatory body,
BaFIN.
For companies with just a handful of staff,
MaRisk requirements would cause a crippling amount of
administrative work, and would be essentially irrelevant to the
small volumes of money being lent.
Worse yet, the new regulations have come in
the middle of a refinancing crisis that has seen regional and
international banks drastically cut back on refinancing the
portfolios of small independent lessors (see Leasing Life 192,
September 2009).
The Mittelstand lessors are not facing this
crisis alone, however. Friedhelm Westebbe, general manager of the
BDL, agrees that “the requirements of financial supervision such as
MaRisk, along with the refinancing situation, are the biggest
challenges for small leasing companies this year”.
As such, the BDL has done a lot to support its
smaller members, setting up a series of workshops with consultancy
Steria Mummert to guide lessors on submitting risk management
information.
In addition, the BDL has provided a series of
implementation checklists, a manual and an information brochure on
MaRisk for its members.
More specifically, the BDL has a sub-committee
dealing specifically with Mittelstand lessors, chaired by ABC
Leasing managing director Michael Mohr. This forum, formed in 1993,
provides a place for delegates from smaller firms to discuss their
issues on a regular basis, and has done a lot to tackle both
regulation and refinancing difficulties over the last year.
Refinancing situation
Dr Martin Vosseler, BDL managing director and
in charge of the Mittelstand sub-committee, said: “To enhance the
refinancing situation, we have been in closer contact with the KfW
[Reconstruction Loan Corporation] and the Federal Ministry of
Economics and Technology.
“KfW has opened a special credit programme for
mid-sized leasing companies already, but at present it is not fit
for purpose.”
He added: “The conditions of the programme
will have to be adapted to the peculiarities of the leasing
business soon. At the same time, we will be discussing with our
finance committee what can be done to attract new funding partners
for leasing.”
‘Few’ will go out of
business
However, it seems certain not all of Germany’s
small leasing companies will survive the year.
Westebbe predicted that “a few” BDL companies
will go out of business, either as a direct result of financial
supervision and refinancing shortages, or because of the retirement
of founders whose families are not keen to stay in the leasing
business.
For the most part, he said, these companies
will simply run off their portfolios, although some may look to
sell their lease books to larger players in the market.
But Westebbe is confident that the support
provided by the BDL will keep most afloat.
He added: “On the whole, we see a trend for
market concentration, but the dynamic of the process has not been
expedited too much – our membership number should remain unchanged,
overall.”
Outside the BDL, where an unknown number of
one-man leasing firms are faced with huge risk requirements from
BaFIN, the outlook seems much bleaker. If these companies go, the
effect on the overall volume of leasing business done in Germany
will be minimal.
The cultural effect, however, will be much
more far-reaching.
The leasing industry in German enjoys much
greater media visibility and public awareness than the rest of
Europe, with national publications such as Handelsblatt discussing
leasing on a weekly basis. Leasing as a proportion of capital
investment, too, is higher than anywhere else except the UK, at
around 21 percent.
Removal of the tiny lessors that cater to
individual communities and businesses all over Germany will simply
remove leasing from many companies’ fields of vision. Larger
companies might pick up business in the short term from a culling
of the Mittelstand lenders, but in the long run they will feel the
effects of a more consolidated culture.
“Small companies are on a par with their SME
customers,” said Vosseler, talking about the strengths of Germany’s
smallest asset lenders.
“Their customer focus is
particularly pronounced, they occupy market niches and are true
experts in their fields.”
Pronounced customer focus
Also, larger lessors in Germany are unlikely
to miss out on much extra business as these smaller companies tend
not to act as brokers.
Vosseler thinks a lot of the innovation
generated among Germany’s medium-sized lessors is fed upwards from
the wide base of smaller funders in the country, as a result of
their flexibility and speed in making decisions.
This flexibility comes from their size, and
this is the very factor that endangers their continued presence in
the market.
Without a widespread distribution of small
leasing companies among the Mittelstand, German leasing could be at
risk of losing touch with a broad swathe of the national
economy.
