Although sources
say Spain’s bailout should have no direct effect on leasing, the
industry finds itself in a greatly reduced market where firms are
protecting existing investments rather than chasing new ones.
However, this is creating opportunities for some foreign lessors to
pick up business, writes Claire
Hack
The bailout of Spanish
banks by the eurozone countries, which has been estimated initially
at €100bn but could end up totalling €300bn, will not have a direct
impact on the country’s leasing industry.
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That is the bold
assessment Spanish leasing association (AEL) director Manuel Garcia
gave Leasing Life this month, although the leasing sector
of Europe’s fifth-largest economy is not entirely unaffected by the
ongoing debt crisis.
“The situation they
refer to as ‘rescue’ or ‘bailout’ in no way affects the leasing
industry, because it’s really marginal in the Spanish financial
system,” Garcia said.
“The industry is
affected because, given the general economic situation, consumption
[is falling], and business investment is reduced.”
Leasing in Spain has
been gaining ground over the last three years in the wake of the
global financial crisis, as businesses look to alternative forms of
lending in the absence of traditional debt finance.
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By GlobalDataPart of the reason for
this is that both leasing and renting offer attractive tax
advantages in Spain, said Garcia.
“Leasing is growing [thanks to] the knowledge of the
companies of these formulas, which are a way without comparison to
address business investments,” he said.
This is not to say,
however, the sector has been unaffected by the economic crisis, he
added. Despite the new opportunities presented to fill gaps in the
market, the sector is not as thriving as it was before the crisis
hit.
“At this time, demand
is falling naturally [and, by way of] reducing consumption,
companies do not invest,” Garcia said.
In the first quarter
of 2012 there was a 24% fall in new business volumes compared with
the same period in 2011, to a total of €1.04bn. The total number of
new contracts came to 19,068. Over the course of the last 18
months, Garcia said, there has also been an increase in the number
of defaults.
During this period,
the Spanish leasing sector has been faced with a sharp slowdown,
and has seen companies prioritising new projects by solvency and
profitability, he added.
“In general, the
interest of businesses [has been] more in seeking funding and
liquidity instead of new investment in equipment,” Garcia
said.
“To do this, at this
association, we have worked [on finding] alternative channels for
our associates, managing regulatory changes and encouraging the
industrial sector in the country to [look at] leasing and renting
formulas to improve the efficiency and competitiveness of their
respective products.”
Despite his optimism,
however, Garcia admits it has not been possible to avoid
repercussions within the leasing industry following the impact of
the latest wave of economic chaos in Spain.
The state of the
economy, which has seen an increase in household cost-cutting and
subsequent reduction in consumption, produced an increase in
defaults although Garcia noted it is more controlled
today.
The turnover ratio has
likewise been affected, but, more than the ratio itself, the
overall portfolio condensed by of the reduction of new business, he
said.
More positively, new
cases of default have, according to Garcia, remained at the same
level compared with last year, and in some areas, have even been
reduced.
Both the leasing and
renting industries are closely tied to the fortunes of companies in
Spain, Garcia added, which have had years of steady, uninterrupted
growth until the global economic downturn. The cumulative total
value of new contracts over the course of the past 10 years, when
the Spanish economy was in a stronger position, exceeded €140bn,
and the total average value of each portfolio was in excess of
€45bn.
More recently,
however, the leasing industry’s success has been much less
pronounced. “The product and the industry will continue to decline
until there is a stable situation to allow overall employment [to
rise], and increase [financing] consumption,” said
Garcia.
Those companies which
do not offer other financing solutions will work to keep the new
business they have already gained, he added, and will concentrate
on projects where the client does not have issues with solvency and
profitability. This will lend significant weight to the ability of
operations that have been struggling to find funding in the wake of
the latest financial crisis in Spain to invest in new
equipment.
“The decline and
growth of business investment in recent years suggests that Spanish
companies will have to significantly increase their purchases in
the coming months and years,” Garcia said.
Such companies will be
“waiting for the opportunity for the leasing sector to reinitiate a
path of growth and recovery of the historical figures [seen in] the
sector,” he added.
Funding
demand
At
present, Garcia added, despite its difficulties, leasing has become
one of the most accessible methods of investment for businesses in
Spain.
“Depending on the
characteristics of the project and the needs of the company, this
product is the best solution at a time when liquidity in the market
is reduced,” he said.
Compared to other
financiers, leasing companies “provide precise business assets,
their services cover the needs of their customers and do not
require the [same method of] payment as any other formula to create
new projects.”
Nearby countries, such
as France, have not experienced the same reduction in new
contracts, Garcia said, but it is also true that the growth in
Spain in the years preceding the crisis exceeded that of its
neighbours.
The leasing industry
in Italy, meanwhile, has remained relatively flat, he added, while
Portugal has suffered much more than Spain.
It is important,
furthermore, to emphasise the benefits of leasing to Spanish
businesses, according to Garcia.
“In Spain leasing and
renting are financial instruments whose characteristics and tax
benefits compete very well with other traditional bank financing,”
Garcia added.
“All of them have
decreased, but leasing and renting probably less than other
products as it facilitates productive business
investment.”
Pain in
Spain
Those leasing
companies coming into Spain from other countries, on the other
hand, have not been as successful as local lessors in gaining
ground in recent months.
SüdRenting España, the
Barcelona-based Spanish arm of German company SüdLeasing, has been
no exception.
“Our customers got
trapped by liquidity issues as the short term banking lines were
reduced,” Alejo Lopez, director general of SüdRenting España, said.
“They started to delay or stop payments and we need to increase
provisions as result.”
He
agreed with Garcia that the bailout of the Spanish banking system
would have no direct impact on SüdRenting’s business but said in
Europe in general, the economic crisis has taken a significant toll
on the company.
“The price of the
collateral assets has dropped as result of the economic crisis in
Europe,” he said.
“Most of the foreign
companies have stopped investment in our country so we had a
smaller market for financing machinery.”
As a result,
SüdRenting has stopped pursuing growth in Spain, Lopez added.”The
company has decided to stop [looking for] new business and will
focus on the management of the existing portfolio,” he
said.
The company has also
made “substantial losses for the last two years, for first time in
the life of the company in Spain.”
Indeed, Lopez used
just one word to describe the outlook for the company over the
course of the next 18 months – negative.
More than that, he
said, there are no growth opportunities for the company to pursue
in the coming months. For Lopez the challenge is to “recover
arrears and equipment under the chapter 11 process, limiting the
potential losses,” he said.
SüdRenting España has
not done any business with neighbouring countries, such as France
or Portugal, Lopez added, and in his experience, businesses in
Spain have been more inclined to buy equipment outright.
“Companies prefer to
own rather than lease, besides which, traditional loans had lower
rates, and customer focus was on price and not added service or tax
advantages,” he said.
In the course of the
last 18 months, however, the company has at least managed to
recover its top five biggest arrears.
The major
disappointment for the company, meanwhile, has been the lack of
support for the industry from the Spanish government. The legal
process in Spain is not supporting leasing companies, due in pat to
the time to resolve issues with the consequence of dropping prices
for the finance leases, Lopez said.
Conservative
approach
For Dutch lessor De
Lage Landen, however, the financial crisis in Spain has not been as
damaging to business.
Mike Janse, De Lage
Landen general manager for Spain and Portugal, said: “We’re part of
Rabobank – it’s a Dutch bank, so it hasn’t been directly
affected.
“We get our funding
via Rabobank, outside Spain. It’s quite positive in the sense that
we see traditional banks in Spain retreating from the leasing
market, and that has created opportunities for us.”
As Garcia suggested,
furthermore, De Lage Landen has been able to use the current
economic situation in Spain to increase its presence in the
country.
For DLL, problems
within the banking system have been, “an opportunity to gain
additional market share,” Janse said. “The bail out will have no
direct impact for us, as we’re not directly part of the Spanish
banking system.”
To improve its market
share, he added, the company has taken a more careful approach when
taking on new business in Spain.
“We also want to be
quite sure we’re relatively conservative in our credit approach,
specifically towards the financial and public sector,” Janse
said.
Behind this, he said,
is the fact that the Spanish economy has been contracting for the
last three years.
“The whole eurozone crisis has had an impact in general and
the impact on the Spanish economy is that, since 2009, the country
has been in recession,” Janse said.
“This will take a long
time to recover from. This year specifically, investment volumes
are going down again, and that means there’s an impact on new
business volumes.”
This, in turn, has led
to a fall in sales among De Lage Landen’s vendor
partners.
“Our partners sell a
lot less and that’s in all sectors – not only in food and
agriculture, in which we’re very active.”
In the tractor market,
furthermore, the segment as a whole is heading for its lowest level
of leasing penetration since the early 1970s.
“In the tractor
market, it’s forecast that the total market will be about 9,000
units,” Janse said. “This is not a small impact – it’s tremendous.
You have to go 40 years back to see volumes like that in a market
like agri.”
If this forecast is
correct, it will mark a 59% fall compared with the number of units
leased in 2007.
“In that market
specifically, a normal level would be about 15,000 to 16,000 units.
In 2007, it went up to 22,000,” Janse said. “Not even the
construction sector [has been impacted as much], and that is more
or less completely non-existent now.”
At De Lage Landen
specifically, there have been two major concerns over the course of
the last year.
First, Janse said, the
recovery of the Spanish economy has been slower than the company
has expected or hoped.
The second concern, he
added, is that the number of cases of fraud have risen as a result
of the financial difficulties experienced across the country and
across Europe.
“We have seen some
instances of fraud – maybe more than in other European countries.
Thanks to our strong mitigation measures, the impact has been
limited,” Janse said. “You see the number of cases increasing –
it’s difficult to say in numbers, but I would say you couldn’t call
it an insignificant increase; we see a link between the difficult
economic circumstances and this increase.”
Compared with the
asset finance sector in Portugal, however, of which Janse is also
in charge at De Lage Landen, the Spanish leasing industry has
struggled much less.
“I know what’s going
on in Portugal and it’s worse off. Its GDP is decreasing 3% to 4% –
it’s very difficult and we’re restricted in our credit acceptance,”
Janse said.
“We’re being very
careful there and control it very well. It’s another model we have
in Spain.”
In Spain, the
expectation now is that by the end of this year, the number of
units leased will stop falling, and, into 2013, it will begin to
climb again.
“Hopefully, we will
reach the bottom this year and see a slight improvement next year.
Investment levels in Spain have been decreasing in Spain since
2008,” Janse said.
Reaching
sustainable levels
At De Lage Landen’s
Spanish arm, Janse is expecting significant growth in total
business volumes for the full year.
“Volumes for this year
including commercial financing are expected to be about €250m –
that’s an increase of about 20 per cent compared with last year,”
he said.
“We are increasing
volumes in this market. It’s more sustainable compared to before
the crisis.”
Volumes are moving
closer to levels last seen before the economic meltdown in Spain
and across Europe, Janse added.
“2007 was our top year
with €300m in volumes. In 2008, it was €150m. Since then, we’ve
been increasing slightly every year.
There have been areas,
however, where the company has seen some difficulties, Janse told
Leasing Life.
The crisis in Spain
has, for example, led to rises in the number and size of defaults
among clients.
“We’ve seen
impact on transportation and construction – we’ve seen huge
defaults. Our biggest achievement has been stabilising the
portfolio due to our very active repossession strategy,” Janse
said. “We repossessed a lot of defaulted equipment and sold into
the market mainly outside Spain. That’s minimised our losses on
those leases.”
As the year progresses
into the second half, he added, the future remains uncertain for
the Spanish economy, for the leasing industry and for De Lage
Landen.
“The outlook is very
unsure. We expect and hope that the bail out of the banks will be
the last real intervention,” Janse said.
“We expect a very
difficult 2012 and a not so great 2013. That means we will continue
our strategy of being relatively conservative on our
acceptances.”
Alongside this
conservative strategy, De Lage Landen will look to increase its
vendor business as a number of potential partners have already
directly approached the company, and it has also been approaching
them.
As well as increasing
its vendor activity, Janse said, De Lage Landen is also working on
business development in Spain, and has begun offering insurance
linked to leasing.
Unlike SüdRenting, the
company is looking at growth opportunities, including moves into
new business sectors in the country.
“We can have a
sustainable model in Spain. We’re moving more into the food side
and we’re strong on agri. But we are also looking into expansion
into technology finance, health care and industrial equipment,”
Janse said.
“We’re also looking at renewable
energy. It was hit hard by the crisis but we’re really looking at
opportunities where we’re not reliant on government
subsidies.”
