After double-digit sales growth, bank-owned asset
finance companies are confident about the year ahead. Nick Huber
and Janet Du Chenne report.
The asset finance businesses of
some of Europe’s biggest banks have made a strong start to the
year. Some are reporting double-digit growth in the first six
months, in stark contrast to struggling retail bank divisions.
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The banks’ leasing businesses are
confident about their prospects amid growing demand from small
businesses and manufacturers, and for technology assets.
Lombard, the asset
finance business which is part of Royal Bank of Scotland bank –
which is 84% owned by the UK taxpayer – will lend more than £5bn
(€5.7bn) to British businesses over the next year – up 20% from the
previous year. In addition to wheeled assets, it will also lend
more on less publicised areas like technology and, in particular,
plant and machinery.
Alexander Baldock, managing
director of Lombard, one of the UK’s biggest asset leasing
companies, told Leasing Life it was seeing the strongest
growth in manufacturing, the small and medium-sized enterprise
(SME) sector, and commercial transport (buses and haulage).
Many companies delayed renewing
assets during the recession but have begun to invest again.
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By GlobalData“Most businesses are six years into
what is usually a four-year replacement cycle [for assets],”
Baldock said.
The various types of asset finance,
such as taking out an amortisation loan, has helped those companies
to start investing again as economic recovery increases demand for
goods. The flexibility of asset finance has proved especially
attractive to business during a time of credit scarcity, said
Baldock.
Other bank leasing subsidiaries
have also reported a significant improvement in the market.
Société Générale Equipment
Finance (SGEF) increased new loans by 19% during the first
quarter of this year.
Excluding factoring activities,
SGEF’s new business was €1.8bn. In Germany, sales increased by
26%.
In France, SGEF signed an agreement
with La Banque Postale, the banking subsidiary of the French
national postal service, for an equipment leasing partnership.
Euro growth
Specialised Financial Services,
which includes the French bank’s consumer finance, equipment
finance, operational vehicle leasing and fleet management
activities, grew its net banking income by 7% to €728m, compared to
the same quarter a year earlier.
Dutch asset financing provider
De Lage Landen is confident about its prospects
after reporting a net profit of €201m last year, a 79% increase in
comparison to 2009. It expects a net profit of around €120m for the
first six months of the year, and around €280m for the full year.
Achieving these figures would create a record year for De Lage
Landen.
Chief executive Ronald Slaats said
the company’s optimism is because vendors are selling more and
requiring financing.
“Our international network is
helping us in this regard,” he said. “Vendors want international
solutions and want to sell into more than one geography.”
Slaats added that vendors in Asia,
for example, want to sell more outside their home market, into
countries such as Brazil.
Finland’s Nordea
saw a 13% increase in sales for its asset and sales finance arm for
the first quarter of the year compared with the same period last
year.
Nordea Finance chief executive
Jukka Salonen said the main increases were seen in the small
businesses and consumer segment, notably in consumer credit and car
finance. Sales have increased in smaller equipment and yellow
goods, he added.
Salonen also said there had been
more sales to smaller businesses than larger corporations. He
suggested the latter group is more hesitant to invest given
uncertainty about the future and because it is able to rely on
existing capacity.
Salonen added smaller businesses,
especially in the transportation sector, are increasing consumption
which is giving more work to companies.
“Construction has been another area
that is picking up”, he said. “We hope the bigger companies will
start their investments in the near future.”
In motor finance, banks’ asset
finance businesses have also made a good start to the year.
Arval, part of
French bank BNP Paribas, has predicted “strong
growth” for 2011, especially in rapidly expanding new markets, such
as Brazil, India and Turkey, where growth rates have been over
50%.
Growth in banks’ asset finance arms
may help them counter criticism that they are not lending enough to
small businesses.
A spokesman for the British
government’s Department for Business Innovation and Skills said:
“The government is committed to increasing the diversity of finance
available to businesses, and encouraging businesses to think
carefully about what sort of finance is most suited to them.
“Asset backed finance is one
potentially useful source of finance, particularly for businesses
who are looking to update or replace their equipment.
“Solutions such as leasing and hire
purchase can help facilitate growth, as they offer finance when new
equipment is needed to expand a business.”
Regulation
However, despite good prospects,
some bank asset finance businesses could be affected by cuts in
certain markets as their parent companies ration their lending.
Barclays, for
example, has decided it will no longer provide asset finance to
companies with turnover less than £5m a year, saying the need for
asset finance among larger companies was not shared by its smaller
customers.
A spokeswoman for Barclays said
that Barclays Corporate continues to provides
asset finance to coporates, including health care, transport and
the renewable energy sector.
Barclays continues to offer a
“broad range” of finance for SMEs, she added.
Although leasing typically produces
a higher return on equity than more risky unsecured bank loans,
asset finance “is not particularly well understood at a senior
level at some banks”, warned George Tonks, a partner at asset
finance consultancy Invigors.
Tonks said banks may decide to reduce lending in their asset
finance arms and prioritise more high-profile lending such as
unsecured bank loans when preparing for the capital requirements of
Basel III, which is due to introduced by the end of 2012.
