Default and loss rates in SME leasing are far below those calculated by the European Banking Authority (EBA), according to a report on the low-risk nature of leasing published by Leaseurope.
The investigation, covering the automotive and asset finance portfolios of 10 lessors in 17 European markets over five years, found the implicit risk weight in SME leasing to be 0.634%, lower than the standard 7% recommended by the EBA.
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The report calculated the average one year default rate to be 2.64%, which compared favourably with European banks. The rate for the 2010 sample portfolio was 2.8%, compared to the EBA’s 4.5%.
Similarly, in 99.9% of cases – an estimate described as "very conservative" by Leaseurope – the loss rate was at or below 23.1% compared to the regulatory figure of 40% and for vehicle leasing the figure was below 20%.
Leaseurope suggested several reasons for this: the lessees need for the asset leading to leases regrading without loss; the straightforwardness of repossessions due to ownership of an asset, and the ability to sell or re-lease to recoup any loss; and the possibility of an assets value exceeding the amount outstanding at default.
Leaseurope hopes the research, undertaken by Deloitte, will highlight to the Basel III committee the low level of riskiness in leasing and the "significant" overestimation of capital requirements for the industry.
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By GlobalDataIt should be "instrumental in positioning the leasing industry as a low risk form of finance".
