Peter Hunt analyses market
statistics for the year to 31 July.
Go deeper with GlobalData
After a very positive June when new
business volumes exceeded the £2bn mark, the Finance & Leasing
Association (FLA) business finance market dipped in July.
Business finance excluding big ticket
dropped 8% on last year, though the underlying three-month growth
figure remains positive at 4% above the same period last year.
Big ticket (transactions over £20m
(€23m) returned to a more familiar theme: after an exceptional June
(£562m), the monthly total dropped back to £146m. On a rolling
12-month basis, the big ticket market remains nearly 60% down on
the previous year.
Consumer finance continues to look
weak except in terms of car financing activity which remains up on
the year. Overall, motor finance volumes were similar to July of
last year, with growth in consumer car finance counterbalanced by a
corresponding drop in the level of business car finance.
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By GlobalDataAgainst these finance volumes, it is
surprising, and worth noting, that consumer car registrations
showed a large drop in July compared to last year, while fleet and
business registrations were largely static.
Business
finance
There are some interesting variations
in asset performance within the business finance market.
Taking a three-month average to smooth
single month reporting variances, it is evident that cars and
business equipment is driving the underlying growth.
Other asset classes are still showing
year-on-year decline, albeit at a slowing rate. Surprisingly, IT
equipment is showing the largest decline, though in part this
highlights fairly strong performance in June and July 2009 and some
improvement may be expected in the next few months.
Perhaps related to the rise in
business equipment lending, sales finance grew 6% in July and
appears now to be back in growth mode.
By contrast, broker finance presented
a third successive month of year-on-year growth and is lagging some
way behind the other distribution channels.
After its peak in June driven by high
big ticket volumes, finance leasing in July represented only 11% of
the market, a new low.
On a positive note, July showed
another slight improvement in arrears reporting, while in the
second quarter the number of company liquidations in England and
Wales were 19% lower than last year.
The most recent Bank of England
Agents Report (for August) shows a consistent, gradual
increase in investment activity with focus on replacement of cars
and IT.
There appears limited impact to date
of planned reductions in public spending, though this could impact
subsequent months. Companies focused on export markets were
identified as a potential growth area.
Comment
July’s figures may be disappointing
but it is too soon to suggest they represent a downward trend.
Despite public sector cutbacks,
Treasury forecasts still suggest a GDP growth approaching 2% for
2011, and fixed investment is forecast to grow by nearly 4%.
Finance companies must remain vigilant
but the uneven recovery will create new opportunities at different
times. Focus on specific asset classes and the targeting of
exporting companies may be valid short term tactics.
The broker market remains weak and,
with appropriate controls and a business model more reflective of
commercial realities, is likely to offer business opportunities to
funders able to provide significant new lending capacity.
The author is a partner at the
consulting and services firm Invigors, and can be reached
at peter.hunt@invigors.com
