Since the credit crisis began, the
Government’s attempts to get both the economy and the funding of
businesses back on track have almost entirely ignored the leasing
market.
However, on 30 July, the Bank of
England (BoE) finally announced it would be implementing measures
that could help leasing companies fill the yawning gap in the
financing of UK SMEs.
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Unfortunately, once you look at the
finer details of the BoE’s proposals, you will see that they are so
conservative, it is doubtful that they will provide the shot of
adrenaline that the leasing market needs.
The BoE proposes that, as part of its
high-profile ‘quantitative easing’ programme, it will start buying
debt backed by equipment leases.
If the BoE starts buying up leases
already on the books of investors, it frees them up to fund new
leases elsewhere. With the BoE as an active buyer of lease-backed
securities, the cost of leasing could fall. The result should be
that businesses will be able to fund the investments they need to
start growing again.
While in theory this is all good news,
the problem is that the BoE says it will only make purchases of
commercial paper backed by leases with a maturity of nine months or
less; any leases with a term of more than nine months remaining
will be excluded. So, with the average equipment lease being over
three years, the vast majority of leases will, in fact, be excluded
from this scheme.
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By GlobalDataBy the time a lease has been reduced
to nine months, virtually all of the risk has been washed out of
it. Our worry is that the BoE’s determination to only take on the
smallest slice of the least risky leases is far too tentative to
make an impact.
The latest data from the FLA
illustrates the need for a bigger boost from the BoE: at £4.7
billion (€5.4 billion), the amount of asset finance raised in the
UK in the second quarter of 2009 was 39 percent lower than in the
same period in 2008.
Some suspect that the BoE proposals on
leases are there partly to defend them from the accusation that
they have done next to nothing to help this vital part of the
financial services sector.
So far the BoE has spent £125 billion
on quantitative easing, none of which has been allocated to
lease-backed securities.
Now the BoE has said that it will add
another £50 billion to its quantitative easing programme. That is a
huge headline figure. But, as it stands, all that money will again
be spent with hardly any of it finding its way towards funding
leases.
The Old Lady of Threadneedle Street
has always revelled in her reputation for conservativeness.
Let us hope that this overly cautious
approach to the leasing market does not act as a brake on the
recovery of UK SMEs.
Philip White
The author is the chief
executive officer of independent finance provider Syscap.
