Peter Hunt analyses market statistics
for the year to May 2010.
Go deeper with GlobalData
Highlights
New business volumes in May among FLA
members saw business finance volumes (excluding big ticket) up 4%
on May 2009, the second upturn in the past three months.
This was led by car finance, up 25%,
following 14% and 31% annual growth rates in the previous two
months. Other assets continue to show lending decline, this month
down 6% on 2009.
Big ticket continues to decline, down
77% to £59m (€70m) on last year. It is difficult to see that it can
decline much further.
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By GlobalDataThe figure also raises the question of
whether, perhaps as a result of bank internal restructurings, some
business that would previously have been reported is now falling
outside the FLA’s net.
Based on the figures and the sales
cycle of big ticket transactions, prospects for the full year
continue to look extremely poor.
Consumer finance continues to look weak
except in terms of car financing.
Motor finance shows upward movement,
although growth from the personal sector seems to be slowing while
increasing from the business sector, perhaps following cessation of
the scrappage scheme.
Also of note is the continued rise of
direct finance. For each of the last eight months, compared to
broker-introduced and sales finance, direct finance has shown the
smallest fall or (more recently) the highest rise in new business
volumes.
This has led to a year-on-year swing of
about 3% of the market into the direct finance sector, which is
running at 65% of the non-big ticket market year-to-date.
Perhaps connected, at £577m lease/hire
purchase took 46% of the total business finance market in May –
this appears to be a new peak, as well as a continuing
trend.
Interestingly, the apparent shift away
from residual value taking that has occurred in non-car assets may
also be taking place in the business car finance market, where the
three-month moving average for lease/hire purchase increased 90% on
last year.
Comparable residual risk leasing rose
only 2% in the same period.
Looking at asset classes more closely,
business equipment now seems to be following car finance into a
recovery phase.
Other major asset classes – commercial
vehicles, plant and machinery and IT financing are all showing slow
decline, and as predicted earlier in the year look set to move into
growth by the half year or soon thereafter.
Comment
Over the coming months we may
see exciting percentage gains in some asset categories.
It is worth retaining a note of
caution as they will be starting from a very low base – taking
plant and machinery as an example, lending volumes during the three
month period March-May 2010 were only 45% of their 2008 levels.
As a result of the growth in
direct finance, it is worth noting that for all that the overall
market has declined, those finance companies operating in the
smaller channels of broker and sales finance will have declined to
a greater extent.
In some cases they are likely
to be witnessing rapidly declining portfolios, falling operational
economies of scale and continuing funding weaknesses.
There could be fallout
ahead.
The author is a partner at the
consulting and services firm Invigors, and can be reached at
peter.hunt@invigors.com
