Leasing Life research has shown that leasing’s
penetration in the financing of moveables market is on the decline.
Can leasing companies turn this to their advantage?
Go deeper with GlobalData
Evidence has emerged that the
popularity of leasing is waning, and that lessors are responding to
this by re-focusing part of their energies on new equipment finance
products.
Leasing Life research has revealed that the
percentage of fixed capital investment financed by leasing has
dropped over the past 12 months across many of Europe’s largest
leasing markets.
In some countries, including Italy, the
leasing penetration rate started to drop as early as 2007.
This decline, which in most countries still
appears marginal in scale, has been linked to rises in the amount
lessors are charging their customers, as well as reduced interest
from banks in leasing due to their reduced tax capacity.
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By GlobalDataThe UK’s Finance & Leasing Association
(FLA) last month told Leasing Life that during the second quarter,
leasing totalled 25.1 percent of total fixed capital investment.
This compares with an equivalent average rate over the past five
years of 27 percent.
Meanwhile, the penetration of leasing in Italy
is expected to decline again this year following a drop of just
over 3 percent last year, from 14.9 percent in 2007 to 11.8 percent
in 2008.
While among members of the German leasing
association, BDL, the volume of leasing as a proportion of capital
investment has remained flat year-on-year, its real estate leasing
market, which makes up a significant proportion of its national
leasing portfolio, is on the decline.
It fell from 5.4 percent of investment in 2007
to just 3.2 percent in 2008, a downward trend that has persisted
during 2009.
Also, although lease penetration in Belgium
has remained steady over the past year, at 9.8 percent, in real
terms it has declined as the country has seen a 10.1 percent
increase in gross fixed capital investment, according to the
Belgium Leasing Association (BLV-ABL).
A number of top European leasing companies
have responded to this by investigating ways they can offer a wider
range of finance products.
Alain Vervaet, a Leaseurope board member,
commented: “It is likely that we will increasingly see lessors
offer a wider product portfolio than leasing. If other asset-backed
finance tools are embraced, global penetration will increase. If
you limit yourself to pure leasing, it might decrease.”
One UK-based senior leasing adviser said that
“the number of players in leasing is down”. As a result of this, he
added, those bank-owned lessors still offering leasing are “being
asked to tender for work they had never had before”.
A switch from leasing to other financial
products would not necessarily spark a sudden decline in European
leasing companies, however.
The members of the Equipment Leasing and
Finance Association (ELFA), the association for United States
leasing companies, switched to a multi-finance product some time
ago, and today leasing represents less than half of their combined
portfolio. The equivalent figure for Leaseurope members is around
80 percent.
A Leaseurope spokesperson said an increase in
public sector investment by governments looking to kick-start their
economies could be one of the reasons why leasing – which has a low
penetration in this sector – has lost ground.
Also, as banks have seen an erosion in their
tax capacity, they are less able to use leasing as a tool for
deferring their tax liabilities. However, this applies mainly to
the big ticket sector.
The greater cost of leasing, which is said to
have risen by up to 200 basis points, is also likely to have pushed
away some customers.
Nonetheless, sources said that leasing remains
a popular financial instrument for SMEs.
One lessor said: “These smaller customers try
to get their facilities from wherever they can.”
Banca Agrileasing, which focuses largely on
the SME market, said it has not seen a decrease in the ratio of
leasing compared to other forms of financing.
Some banks are also known to be actively
selling leasing over other products because, according to one
senior lessor, it “has more security and you can get higher spread
rates with it”.
