The major players in the Irish leasing industry are cautiously optimistic that the decisive steps taken to minimise the impact of Covid-19 will enable their sector to turn the corner by the end of this year. Paul Golden reports
A decade ago Ireland was being bailed out to the tune of €85bn by the EU after suffering Europe’s biggest real estate crash.
Go deeper with GlobalData
Since then the economy has had a change of fortune, thanks in part to a favourable tax regime that attracted foreign multinationals to set up European HQs in Dublin.
A major growth industry has been aircraft leasing, which has expanded rapidly in Ireland. The leasing industry is also tied up with Ireland’s large SME sector, which employs over one million people.
The most recent biannual Department of Finance SME credit demand survey (covering the six month period from April-September 2019) found that demand for credit had remained stable among Ireland’s small businesses.
The average cost of credit reported on outstanding loans was 5.1%, up from 4.4% for the same period in 2018.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe percentage of SMEs that had applied for their finance to one of the pillar banks was almost unchanged at 77%, while the proportion of credit applications declined rose slightly from 13% to 14%.
Irish leasing
One in four of the businesses surveyed had applied for bank finance in the six months to September 2019 – the same level as in September 2018 – and the survey also registered little change in expected future demand for credit, with 18% of SMEs expecting to apply for finance in the next six months compared to 19% during the corresponding period in 2018.
Four in five of businesses that had not sought credit in the past six months said this was because they had no credit requirements.
The only significant decrease in credit demand by sector was found among hotels and restaurants (down from 28% to 22%).
About 40% of all SMEs with debt were not certain of the interest rate attached to their outstanding loans, although only 1% reported having missed repayments of their loans in the past six months.
Just 3% had adjusted their bank debt, with the main types of adjustments made being repayment scheduling and term extension.
Of course, these figures do not reflect the current challenging climate as businesses grapple with lockdown.
In March it was reported that Finance Ireland, a state-backed non-bank specialising in asset finance and leasing, has suspended a planned initial public offering citing weakening market conditions in the wake of the coronavirus pandemic.
Equipment vendors
Also in March, Eamonn McMahon, managing director of online asset finance marketplace EquipmentConnect, said the slowdown precipitated by the coronavirus would be ‘quite severe’ but would not last particularly long with equipment vendors foreseeing a material, but temporary, slowdown in the financing of new equipment while used equipment leasing was performing rather better.
He said he was aware of customers who were now considering used equipment having previously opted for new and that customers were also showing a preference for longer-term financing via finance leasing rather than a hire purchase agreement.
Grenke managing director, Justin Twiddy, acknowledges that the asset finance market is in a state of flux but adds that it had been buoyant prior to the crisis.
“The Irish economy was very strong and we had forged some new and exciting relationships with partners and resellers,” he said.
“Last year was a very strong year for asset financing in Ireland. We had seen and heard greater dialogue about the benefits of asset financing which in turn prompted increased contact with our sales team.”
Twiddy added that the increased digitalisation of the sector also was significant with better sales applications, e-signature facilities and online portals allowing the customer greater flexibility in how they transact with the marketplace.
“As with all rising markets we saw increased competition in the sector,” he explained.
“IT and telecommunications have always been very strong sectors for us and will continue to be so, especially as more traditional sectors such as medical and dental increase their business digitalisation.
“More recently we have seen growth in the technology and ‘eco’ sectors with customers looking to adapt their own business models to suit the market need.”
The company has evolved with flexible leasing solutions, be that single asset financing or larger, multi-drawn down products such as its own master lease agreement.
“We increased our local sales teams and enhanced our digital offerings, which now more than ever are important,” said Twiddy.
“Multiple touchpoints that give the customer fast, secure, online solutions make for a better service for customers and partners.
“We have also increased our communications to the market across all channels and opened the conversation about leasing and invoice finance solutions.”
The current health of the asset finance market in Ireland is difficult to ascertain in the current climate admits Niall Murphy, head of asset-based lending at AIB (Allied Irish Banks).
“If you had asked me that question two months ago I would have given you a very different answer,” he said.
“The impact of Covid-19 has been severe on businesses due to the required lockdown, although obviously, it was the correct decision as people’s health and wellbeing are paramount.
“At the outset, we had anticipated a V-shaped recovery but it now appears more likely to be a U-shaped recovery.”
Falling Asset Sales
Consumer confidence in Ireland has suffered its largest drop in many years and the sale of assets has fallen sharply.
Looking at the market for some of AIB’s key segments, sales of new cars were down 63% in March and 21% for the year to date.
Light commercial vehicle sales were down 52% in March and 15% year to date, although heavy commercial vehicles have grown 11% during 2020 as the transport and logistics sector has shown resilience with transportation of goods remaining a critical service.
Equipment power
Plant and equipment sales have been relatively strong as the construction sector has continued to grow throughout 2019 and the early part of 2020 due to the shortage of housing.
The agricultural tractor and machinery market continued to perform strongly through 2019 with sales of new tractors, teleporters, wheel loaders and grassland equipment all up and this positive trend continued through the first three months of this year with sales at the same level as they were during the equivalent period in 2019.
“Our purpose as an organisation is to back our customers to achieve their ambitions and we have a wide range of flexible customer solutions to assist customers with the purchase of new and used assets throughout the supply chain,” said Murphy.
“Our focus on delivering strong customer outcomes is measured in many ways but one key measure is our net promoter score and across our consumer and SME franchises we continue to improve our scores above 70, which is considered world class.”
Kieran O’Brien, executive director at Invigors EMEA noted that the sharp economic downturn resulting from the coronavirus pandemic has seriously impacted the Irish asset finance sector.
New leasing business volumes have paused, with the focus now on supporting existing customer and partner relationships.
“Customer liquidity issues and business failures will inevitably lead to lease portfolio losses so it is critical that the leasing operators immediately focus on getting the right strategies, competencies and processes in place to make informed decisions and minimise potential losses,” he said.
“We see this crisis period as an opportunity for asset financing organisations to re-evaluate and renew their target operating model in order to create a more robust platform for sustainable future growth.
“The key underlying components that should form part of this operating model review are organisation, market approach, process and technology.”
Growth opportunities
Beyond the crisis period, Invigors sees growth opportunities for asset financers to expand their support to companies engaged in several different sectors (including manufacturing, ICT and transport) by expanding their footprint with their customers through establishing financing capabilities.
These financing capabilities can range from vendor finance partner relationships with local asset finance providers to full captive financing provided by these companies or a hybrid approach.
O’Brien observed that the main banks continue their market domination through their scale, branch network and dealer relationships but added that some independents and non-bank players are eroding this market share, especially in the SME space through their speed of execution and innovative products and systems.
“Ireland continues to lead the way as a global hub for aircraft leasing, supporting some 5,000 jobs with most of the leading global players located in Dublin,” said O’Brien, adding that the expectation is for the aviation sector to continue to grow in the coming years.
He continued: “By contrast, in mainstream motor and equipment finance the establishment of companies’ own captive/vendor financing operations has been disappointing.
“Nonetheless, there are major opportunities for companies – especially in the manufacturing and ICT sectors – to look again at the advantages of setting up their own financing capabilities as a means of strengthening their established footprint with their customers.”
O’Brien said Invigors is supporting the asset finance sector in Ireland through providing expertise in consulting services including corporate restructuring, strategic marketing and research, M&A, asset and lifecycle management, funding, tax, regulatory and accounting services and business transformation together with captive and vendor finance.
“We are offering a coronavirus leasing business advisory service to support the implementation of the remedial plans required to protect lessors from the worst elements of the crisis,” he added.
“This crisis support covers such areas as crisis management diagnostic, commercial decision support, portfolio troubleshooting, remarketing and redeployment strategy development and interim management/surge support.
“The key consideration in crisis management is to ensure that the business has the maximum organisational capability in each of its critical business operational areas.”
Registering leasing
As noted in previous reports, while leasing is widely used across many sectors of the Irish economy the absence of a central register for lease activity makes it difficult to determine the size of the lease market in Ireland or the performance of specific sectors.
O’Brien said that in the medium-to-long term Invigors will support Irish asset financers in building a leasing association in Ireland similar to what exists in most other European countries.
“We believe it is time that the leasing groups in Ireland came together and created a formal leasing association aligned with all the other national leasing associations across Europe,” he added.
“The advantages of being part of a pan-European leasing organisation would be significant in terms of synergies and the adoption of innovative financing products.”
2020 Outlook
McMahon suggested that by end of Q3 the asset finance sector would be emerging from the crisis quite strongly and predicted a strong final quarter.
When asked about his expectations for market growth over the remainder of 2020 Twiddy referred to the importance of perspective and praised political leaders for taking some very tough decisions to protect the nation.
“This will be a challenging year for everyone no doubt,” he added.
“The reopening of businesses will be slow and cautious for everyone and I foresee new ways of doing business and engaging but in Ireland – more so than anywhere – we do business with people.
“We have all demonstrated great agility and flexibility over the past couple of weeks and will continue to adapt going forward.”
Murphy said the outlook for the remainder of 2020 is difficult to predict but accepted that Q2 and Q3 will be challenging given the ongoing impact of Covid-19.
“The hope is that we can recover in the final quarter of this year and into 2021 where deferred purchases flow through,” he added.
“Our primary focus at the moment is to support our customers through this difficult period.”
Given the current crisis, Invigors expects to see growth constrained for the remainder of 2020 and has been emphasising the critical importance of understanding the inherent value of lease portfolios and proactively developing strategies to maximise earnings from both assets remaining with the lessor as well as developing creative redeployment and remarketing strategies.
“Irish vendors are still heavily focused on moving equipment and use asset finance primarily as a sales aid,” concluded O’Brien.
“In Europe we increasingly see OEMs [Original Equipment Manufacturers], dealers, VARs [Value Added Resellers] and distributors across a broad range of industries deploying richer financing offerings and sophisticated integrated solutions.
“We expect that these market trends will increasingly be adopted in Ireland over 2021 and beyond.”
Irish Banks’ non-performing loans to rise as government support ends: Fitch
