While the Dutch leasing market is showing strong signs of revival, the trend next door in Belgium is almost the exact reverse They are, nevertheless, very similarly sized markets, as Paul Golden reports
Having both endured difficult times in recent years, the Dutch and Belgian leasing industries find themselves at different stages of recovery.
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The Dutch leasing market showed strong signs of revival last year, with business up 40% in the final quarter compared to the same period in 2012 on the back of increased investments by Dutch businesses. At 4.2bn, the value of the market rose by 7.3% in 2013 compared to the previous year.
Any kind of growth is welcome, says Peter-Jan Bentein, secretary general of the Dutch Association of Leasing Companies (NVL). "We feel that the market should total at least 4bn, which was not the case in 2012. So anything above four billion is good news, although we are still far away from the level of business done in 2008."
The small to medium-sized business segment of the market now accounts for 84% of all lease activity. In terms of specific sectors, growth has been most notable in heavy trucks, agricultural machinery and business services, with the heavy commercial vehicles market boosted by the transition, in January 2014, to new more environmentally-friendly engines. Car leasing has been assisted by stimuli for low-emission cars, which ended in 2013.
Vendor leasing (including through captives) has grown to 45% in terms of distribution of new leases, while distribution through bank-owned lessors fell to 45% last year from 55%.
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By GlobalDataRace to repossess
A key recent development was the measure proposed in 2012 to reinforce the position of the tax authorities in terms of an (existing) legal privilege on assets ‘on the ground’ of a company with tax liabilities. This privilege means that tax authorities may take possession of these (fixed) assets, even if the assets are funded or leased through a bank loan or a financial lease (so with a pledge on the asset) as long as the financier has not yet taken possession.
"This has led to a kind of ‘race’ to be the first to repossess between the bank/lessor and the tax authorities," explains Bentein. "The position was reinforced by the simple rule that if a financier was considering repossessing, he should notify the tax authorities and respect a ‘stand still’ period of four weeks in which the tax collector may decide if he would take the asset in the case of tax liability. The NVL started to lobby on this issue and we managed to obtain an exemption to the notification rule under certain conditions appropriate for leasing, which means the lessor’s position is now again relatively strong."
The NVL has undertaken a number of initiatives to increase awareness of leasing through information and education of entrepreneurs in conjunction with the Dutch employers’ organisation MKB Nederland (SME Netherlands) and supported by the Dutch Ministry of Economic Affairs.
"After last summer, businesses started to believe the economy would pick up, which is shown in the growth figures of Q4," adds Bentein. "We expect market growth in 2014 compared to 2013, but we think it will be in single digits."
The fluctuations in the Belgian lease market have been much less pronounced since the global financial crisis, with the latest data from the Belgian Leasing Association (BLV-ABL) indicating that the market was worth 4.1bn last year, of which equipment and vehicles accounted for 3.7bn. This represents a decline of 7.4% from 2012 – an almost exact reversal of the situation across the border in the Netherlands.
When growth in real estate leasing is stripped out, the figures are rather more worrying, showing a 9.9% decline in equipment and vehicle leasing in 2013.
Absence of big-ticket
In addition to the decline in subsidies in renewable technology, Geert van Asbroeck, BNP Paribas Leasing Solutions’ business development director for Belgium refers to the absence of big-ticket deals to explain the decline in the value of the lease market between 2012 and last year.
"The Belgian lease market is dominated by the four major bank lease companies – BNP Paribas Leasing Solutions, ING, KBC and Belfius Lease – which between them control about 80% of the market. When the business done by other banks is taken into account, bank leasing companies represent between 85% and 90% of lease volumes."
BLV-ABL data confirms that the sectors experiencing the sharpest falls were renewable energy, big-ticket and public sector (down 43%, 46% and 37% respectively). The only segment of the market to grow was agriculture, which was up by just over 10%.
Frank Stienstra, CEO of ABN Amro Lease explains that leasing penetration in the Netherlands is around 10%. "Dutch entrepreneurs are relatively unfamiliar with the advantages of leasing solutions. Last year Mare Research conducted research on why leasing is not part of the DNA of companies looking for a financing solution and found that using overdraft facilities and/or equity were preferred options," Stienstra says.
However, he says this mindset is slowly changing, partly because of the shrinkage of the financing market. "Our biggest challenge is to make entrepreneurs familiar with the advantages of leasing, yet despite relatively low leasing penetration, 2013 has been a healthy year.
"The increase in leasing volumes (8.2% excluding cars) is high in comparison to growth figures of other EU countries."
In addition to the regulations enacted in April 2013 addressing the position of the Dutch tax authorities as a preferential creditor on goods owned by others than the person owing the taxes, Stienstra refers to Basel III regulations favouring asset-based finance solutions because of capital efficiency as one of the most significant developments over the past 12 months.
Looking ahead, Stienstra expects the market to grow this year compared to 2013. "Last year was a year of change in the economic climate: from shrinkage in the first half to growth in the second half. Q4 2013 resulted in a 0.9% growth rate, mainly caused by increasing investments (6.7%) -the first increase since Q4 2011 – and we see further increases in business confidence in 2014.
"Furthermore, we see a 25% decrease in bankruptcies compared to the same period last year, especially in construction and transportation, two important sectors for the leasing industry.
"Basel III regulations will continue to have a positive effect on lease production and entrepreneurs are becoming more and more aware that market conditions are changing rapidly. To be able to adapt to these changes and stay ahead of the competition, they start looking for financing solutions which enable them to maintain a healthy liquidity position."
Coert Noordkamp, managing director of SGEF Benelux acknowledges there are a number of uncertainties hanging over the Belgian lease market:
– Government investments have decreased substantially because of the global financial crisis and, as a result, the few investments made are being targeted by major lease companies, which puts considerable pressure on margins;
– Many companies are waiting for the outcome of May’ federal election before taking investment decisions;
– Heavy taxes on labour are not favourable for keeping international companies in Belgium, which means a lot of investments are being done abroad;
Noordkamp says: "In the Netherlands, all sectors show a strong increase (transport +10%, other assets +31%, with the exception of the copier segment, which shows a decrease of -19%). Investments in transport dropped heavily in previous years, but these couldn’t be postponed for a long period. In Belgium, the expectation is that ICT will continue to show a small increase.
"There was a strong increase in the Dutch transport segment, especially in heavy assets (over 10,000kg), but also in trailers, buses and coaches and in handling equipment such as forklifts. IT finance recovered well with a 6% increase in 2013 compared to 2012. Other strong development was seen in the agriculture area, which was up 63%."
Considering the economic environment, Noordkamp says he’s quite satisfied with market growth even if leasing penetration rate could be higher compared to other means of finance in the Netherlands. "The overall expectation for Europe in 2014 is growth, although in Belgium things are on standby as it’s an election year."
Erwin Ollivier, country manager Belgium at De Lage Landen observes that the Belgian lease market in 2013 suffered to a greater extent than most businesses anticipated, with the expected upturn failing to materialise in a country that had coped relatively well with the fallout of 2008/9.
Ollivier said: "Leasing companies with banking operations in Belgium are very aggressive – there are high levels of private saving in Belgium so the banks are sitting on large amounts of cash.
"We expect the market to improve this year, but competition for business is intense and there are elections coming so we don’t expect public spending to rise significantly through the remainder of 2014. However, a number of large infrastructure projects are in the pipeline so we expect more spending in 2015 and 2016."
De Lage Landen Netherlands executive vice-president Milko Wijckmans says the firm is witnessing increased demand across sectors linked to the real economy, for example traditional activities such as road building and transportation and logistics, as well as the food and agricultural sector.
"We have seen that the vendor finance area is getting stronger in the Netherlands. Original equipment manufacturers are getting better organised in terms of offering financial support to end-users when acquiring their products. It all fits into the demand for full-service solutions and the concept of one-stop shopping. This is already a mature trend in other countries where we support manufacturers with vendor finance solutions, which is why we plan to strengthen our position in vendor finance in Holland as well."
While the Dutch financial sector (and especially the banks) was heavily supported during the financial downturn, Wijckmans believes it’s now getting back in shape.
"This is good news also for leasing, especially the bank-owned leasing companies, for whom the right funding plays a crucial role in staying competitive," he says.
There has been pressure on margins in the Belgian lease market, notes Patrick Beselaere, global head ING Lease, adding that bank credit has been more impacted by increased regulation than leasing activity.
"The banks are pushing leasing more aggressively because they like asset-backed finance and customers are more accepting of the concept," Beselaere says. "In Belgium the bulk of leasing is bank-related and the largest four lessors dominate the market with about 75% market share, while the smaller banks control another 10-15% of the market for new lease business. In the Netherlands the market is more balanced, with banks controlling half the market and captives with a 10% to 15% share. Average ticket size in Belgium is about 45,000, compared to 75,000 in the Netherlands."
