In light of decisive moves
from French bank BNP Paribas on the new regulation, Nick Huber
looks at the impact on bank-owned and independent
lessors.
Go deeper with GlobalData
Any
regulation which requires banks to increase their capital reserves
to help them withstand future shocks is likely to create both
threats and opportunities for leasing businesses.
Some of Europe’s largest leasing
businesses are owned by banks and could be scaled back, experts
believe, as banks re-allocate capital in preparation for Basel III,
which will be phased in from 2013.
This would create job losses and
provide opportunities for ‘independent’ leasing companies to
expand.
But perhaps the most worrying
aspect of Basel III for bank-owned leasing businesses could be how
little influence they have on their owners at a critical time for
the banking industry.
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By GlobalDataThe requirement for a bigger
capital buffer will mean that the cost of different types of bank
finance (unsecured loans, corporate loans, asset finance etc) will
come under greater scrutiny.
When reviewing loan types, banks
may decide that some types of loan are not worth setting aside
capital reserves for, either because they are not profitable
enough, or are not considered a core service.
One bank has already announced
plans to reduce the size of its European leasing business.
In September, BNP Paribas announced
it would withdraw some of its non core leasing business in the UK
and other countries as part of an effort to comply with Basel
III.
Jean-Laurent Bonaffé, the French
bank’s chief operating officer for retail banking, the division
which encompasses leasing operations, also said the company intends
to exit non-core leasing markets in real estate and yacht and
private jet leasing.
Bonaffé said: “Basel III has a
strong impact on the leasing business.
“Outside our domestic networks,
some of these businesses are not adapted to Basel III; they rely on
distribution organisations that will not allow re-pricing.
“It is key to adapt as soon as
possible. It is a big change for leasing but the sooner you are
ready for a new regulatory environment the better off you are.”
In the UK, BNP Paribas will only
close its Fortis business, which it bought in 2008, said
Jean-Francois Gervais, deputy general manager of BNP Paribas
Leasing Solutions.
BNP Paribas’ UK vendor finance
business was among the most profitable in Europe and would not be
affected by the changes, Gervais added. He stressed BNP Paribas has
no plans to exit the UK in these areas.
The previous day, Bonaffé had
surprised some of the audience when he said the bank would be
withdrawing all its leasing operations from the UK.
Leasing Life asked
Europe’s biggest leasing companies about how they are preparing for
Basel III and how they think it will affect their business.
Most of the leasing companies
declined to comment. Those who commented played down any fears that
Basel III could dent their profits, insisting the financial
advantages of leasing would continue.
A spokesman for ABN Amro Lease said
the company would “continue to increase investment in its leasing
business over the coming years” and would “expand in geography,
products and in numbers of staff”.
Its priorities when preparing for
Basel III are capital efficiency and profit margins, the spokesman
added.
Ben Lindberg head of business
development in Nordea Finance, a Scandinavian bank with an asset
finance business, said the “relative benefit” for leasing will
remain because “risk weights” are calculated in the same way as
Basel II and “leasing is still more capital efficient”.
A spokesman for Unicredit Leasing,
which is based in Italy, said it had no plans to follow BNP
Paribas’ example and cut its leasing operations.
Not everyone, however, is convinced
leasing will remain unscathed by Basel III.
Kenneth Gray, an asset finance
expert at law firm Norton Rose, said one of asset finance’s main
advantages under Basel II – using the value of an asset to reduce
the amount of a re-saleable capital that needs to be set aside
against the loan – will be reduced under Basel III.
This is because the regulation
stipulates a minimum amount of capital banks need to hold against a
loan, irrespective of the value of any collateral.
“I think asset finance will become
less attractive under Basel III because the benefit of being able
to use an asset diminishes,” Gray said.
“Some banks will be doing a lot
less business in asset finance.”
Should that be the case, it could
be good news for leasing companies not owned by banks.
“Basel III is a potential
opportunity for independent leasing companies to expand or buy some
of banks’ leasing businesses,” said Christian Roelofs, associate
director at the leasing and consumer finance division of Grant
Thornton, an accounting firm.
He cites Alphabet’s acquisition of
ING Car Lease for €637m in July as an example.
One independent lessor, Close
Brothers, stated in its results report for the year to 31 July 2011
the group does not expect to be materially impacted by the proposed
changes under the Basel III regime.
Close said it has a strong funding
and capital position – £5.4bn (€6.2bn) available funding through a
diverse range of sources and a core Tier 1 capital ratio of 13.1%
as of 31 July 2011.
Privately, leasing industry
executives seem fairly uninterested in Basel III.
One leasing adviser, who spoke to
leasing company chief executives about Basel III during a recent
conference organised by Leaseurope in Vienna, said one reason for
their apathy was due to leasing subsidiaries’ limited influence on
their corporate parents.
“I think the truth is – and that is
supported by many of the comments in Vienna – that many do not yet
know what affect it will have on them,” the consultant said.
“It will come down from on high once the parent banks have
thought through the future strategy and many leasing CEOs won’t
admit they have no say in the matter.”
