The consolidation of ING’s European leasing business, which included putting its lucrative UK business into run-off, rocked the industry in 2012 and the Dutch bank’s head of leasing is certain there are more exits to come from other banks. In his first interview since the runoffs were announced, Patrick Beselaere talks to Grant Collinson about the reasons behind the decision and the future of European leasing.
The decision to wind down ING Lease operations in five markets last year was not one taken lightly by ING Group.
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The move was part of wide-ranging review aimed at streamlining the bank’s commercial lending business and, according to the firm’s leasing head, the same soulsearching is already going on in the boardrooms of Europe’s other bank-owned lessors.
Speaking to Leasing Life in February, more than two months after ING Lease stopped signing business in the UK, Europe’s second largest market, Patrick Beselaere, ING’s product head of General Lease, explains how his firm reached the decision.
"It was taken over the course of 2012," he says. "We had to review our product-market combinations. That was the start, and then you have to go through a process." As part of this process, ING looked at all the countries in which it operated a leasing arm, to assess in each case whether the strategy of the leasing business was still aligned with the overall group strategy.
What prompted this examination is likely to be well known to all in the industry, Beselaere says. "The world has changed and is changing," he adds. "As capital has become a scarce resource, this has triggered a lot of analysis."
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By GlobalDataBeselaere, who was appointed head of ING’s leasing business in January 2012, from his post as chief executive of ING Lease Belgium, says leasing was a very good product for banks before the financial crisis of 2008 when capital was abundantly available.
"Leasing is traditionally transaction-based so in the old times, given that the funding was abundant, if you were able to realise a leasing transaction which was profitable then the bank-owned leasing company was happy," he says. "But in a world where capital is scarce, the bank wants to allocate its capital where it can maximise profit."
As Beselaere sees it, when a bank allocates capital for lending in the post-2008 world, that capital needs to have the potential to offer more of a return by developing other lines of business. "This means leasing in a bank environment must move from transactional-based to a more relationship-based model, [therefore ] you have to review your product-market combinations," he says, "and this means your leasing strategy will largely depend on your capacity as a bank in the different markets [in which you operate]."
The leasing fit
Beselaere tells Leasing Life, the strategy for ING is to become a "universal bank" in certain countries and so the group looked for a fit between the leasing business and the bank’s existing operations and customer segments.
With this in mind ING identified markets in Czech Republic, Slovakia, Romania, Ukraine and the UK as failing to make that fit. The group then had to look at its options.
Beselaere is reluctant to provide detail on what other options where looked at and, when asked whether the businesses had been considered for sale, says only: "We considered all scenarios but we have chosen the best option given market circumstances."
When news of the UK exit was broken, sources with knowledge of the business told Leasing Life that ING Lease UK was the Netherlands-based group’s most profitable leasing business and one of the most profitable units across ING’s Commercial Banking division.
Leasing Life understands ING Lease UK wrote £1.2bn (1.4bn) of business in 2011 and estimates for 2012 put the figure as high as £1.7bn. Beselaere explains ING does not disclose the figures for its leasing businesses separately from group business results so he is restricted in what he can say regarding profitability.
He does confirm all the businesses put into run-off in 2012 were profitable although he says the level of that profitability was dependent on the maturity of the business. "Some of those businesses were started three or four years ago. Others, like the UK, were mature companies and profitability depends on maturity. But they were all sound businesses."
Such sound businesses, even in run-off, are likely to generate considerable income for ING while the receivables from the last few years of lending continue to come in. Again, Beselaere does not go into any details but acknowledges the earnings from those businesses will be "relevant" for ING.
The changing market
More relevant for European leasing as a whole, however, is what impact ING’s move will have on the wider industry.
Beselaere believes the European leasing market is changing and will look quite different within a few years. "You can see the market changing," he says. "It already started one or two years ago and it will continue
in the coming years."
The success of all leasing firms will be dependent on the funding capacity and their value proposition, says Beselaere. "If [leasing firms] don’t have one or both then their destiny will be difficult and this will create dynamics in the market," he adds.
Of the three types of lessor in the market – bank-owned lessors, captives and independents – Beselaere says captives will become increasingly important because of their ability to attract funding.
Independent firms too, he says, will be reliant on sourcing funding but also whether they can offer a value proposition to their natural customer base which is "sufficiently attractive compared to alternatives."
When it comes to the bank-owned lessors, Beselaere believes the example set by ING Lease will be followed by others in the European market and says some banks are already in the process of bringing this about.
"You can be sure that all bank-related lessors have the same concerns [as ING did].
"I think we have been a forerunner in this process of strategic review and we have been candid in this process. I know that other banks are doing the same but are not being explicit in the way they communicate it," he says.
Beselaere believes the European leasing industry will shift towards a model similar to the US market where, although banks continue to operate, the leasing marketplace is more diverse and the banks less dominant, with a greater portion of the market taken up by captives and independents.
This shift, says Beselaere, will be the result of another shift within bank-owned leasing from standalone business to lending product. The question of whether leasing is an industry or product came up at the Leasing Life’s European conference in November 2012, as speakers and delegates contemplated the ING decision. There the majority of experts said leasing needed to be more than just a bank lending product.
The leasing "product"
Beselaere disagrees and tells Leasing Life leasing is already a "product", at ING at least. "ING Lease Holding was quite an independent part of ING," he says, "[but] over the last 18 months we have been in a transition from standalone to a lease product – to a product just like other products at the bank."
The move towards a leasing product is part of ING’s overall strategy for greater integration, and towards becoming a "universal bank", which means leasing is only viable in those countries where ING has a strong banking footprint.
The countries which fit the bill and which ING considers its "home markets" are Belgium, Netherlands, Luxembourg, Poland and Turkey. In these markets ING can offer both retail and commercial banking and has an established business customer base of SMEs and mid-sized firms, Beselaere says.
"Leasing," he says, "is no longer a standalone or niche product but part of the standard offering of the bank to its customer base." As part of the "standard offering", Beselaere adds, if ING wants success in those countries it needs to be able to offer leasing to its customers.
"It introduces the possibility of offering lending to the traditional ING bank customers in those countries. It is an additional offer we can make and give to our customers so it should improve our position in those countries as a bank," he says.
How successful the search for business growth will be in its five remaining leasing markets, Beselaere acknowledges, will differ from country to country and be dependent on the economy of each market.
"If you look to the countries and see the relative growth rates, Turkey is completely different compared to the Benelux region," he says.
As the Benelux economies are mature Western economies, Beselaere anticipates growth rates of below 1% and says ING believes growth will come from firms moving away from "plain vanilla bank lending" towards products such as leasing.
"Poland and more especially Turkey are growth markets so, besides the same substitution effect, there will be a real positive effect linked to the economic growth of those countries," says Beselaere. "Again we cannot give specific figures for our growth predictions but they are important enough to motivate us to develop the business further," he adds.
The routes to market through which ING intends to grow this business have also consolidated along with its geographical reach.
"We have fewer countries but now the business models of the remaining countries are far more coherent with each other," Beselaere says. As part of its "universal bank" strategy, ING will mostly offer leasing through its banking channels; although it will continue to run "selective" vendor programmes, these will predominantly be in conjunction with existing bank customers.
These vendor programmes will allow ING Lease to continue to serve its international corporate customers who do business outside the five markets, Beselaere says.
Beselaere cites an existing vendor programme with digital projector manufacturer Barco as the model the company will most likely continue to follow. The partnership is a pan-European programme but is managed through Barco and ING Lease Belgium and, Beselaere says, does not require a footprint in every market into which Barco sells.
Nonetheless, Beselaere does not rule out geographical expansion on the back of international partnerships, and says the company would consider such proposals on a case-bycase basis.
Such considerations are part of how ING Lease will try to "look for value for the customer,"
by tailoring and structuring lease transactions where a standard will not suffice, says Beselaere, and for this the company will still rely on the leasing expertise which had allowed it to achieve success in so many markets.
"It is more a matter of being organised differently than before but without losing the core competencies you need to be successful in leasing," says Beselaere.
He explains that, throughout the transition of 2012, his message to his staff has been about making the most of the company’s newly combined strength in its closer integration.
"We can do better by joining forces with the bank and become more effective," he says, "but if we can combine the strength of the bank with strength of the leasing company then we can write a fantastic story in the future. That is what motivates us and gives us perspective."
