European leasing is showing significant signs of recovery, with key performance indicators (KPIs) improving on the back of Covid-19 restrictions easing and vaccination programmes progressing across Europe, according to the results of the Leaseurope Q1 2021 Index.
The Leaseurope Index is a survey that tracks key performance indicators of a sample of 23 European lessors every quarter.
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As a result, all weighted average ratios and median ratios have improved in Q1 2021 compared to Q1 2020. The trend in the median ratios (i.e., for the ‘typical’ company in the sample) also reflected a positive picture for the ‘typical’ company in the sample.
New business volumes increased slightly in Q1 2021 compared to the same period a year ago, with a rise of 1%. The portfolio of outstanding contracts expanded marginally by 0.6% in Q1 2021, while risk-weighted assets dropped by -1.5%.
Profit & profitability
Aggregate pre-tax profit surged by 57% in Q1 2020 as a result of releasing provisions. Therefore, weighted average profitability also improved, reaching 40.8% compared to 32.0% in Q1 2020. The median profitability ratio (less susceptible to outlier values and more indicative of the ‘typical’ company) also showed an improvement in Q1 2021 at a higher level of 46.5%.
Income, expenses & cost/income
Operating income rose by 10.3% in the first quarter of 2021 compared to the same period a year ago. Despite the simultaneous increase of 2.8% in operating expenses, the weighted average cost/income ratio improved to 48.6% at the beginning of 2021, which was 2.2 percentage points lower than Q1 2020 while similar to the level of the full year 2019. The median cost/income ratio is more positive when excluding outlier effects, with an improvement of 3.2 percentage points to reach 44.9% in Q1 this year.
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By GlobalDataLoan loss provision & cost of risk
Loan loss provisions fell substantially in Q1 2021, down by -53.8% year-over-year from loan loss provisions in Q1 2020. As a result, the weighted average cost of risk halved compared to the level of Q1 2020, at 0.3% versus 0.6%. In terms of the median ratio, the cost of risk reached 0.2% in Q1 2021.
RoA and RoE (1) indicators
The levels of both RoA and RoE were higher in Q1 2021 compared to Q1 2020. Weighted average RoA stood at 1.8% in Q1 2021, with the median ratio at 1.6% for the ‘typical’ leasing company.
Peter Hupfeld, chief executive of Nordea Finance, said: “The first quarter of this year shows a positive performance with financial indicators improving, particularly income and profitability. Despite the uncertain environment remaining, economic optimism has been reflected in the releasing of loan loss provisions. As uncertainties regarding the further evolution of the pandemic and EU-UK trade relations diminish, the European Commission has forecast that business investment will pick up more strongly in the second half of this year (2). Thus, after the difficulties of last year, it is a good moment for lessors to expand support for European businesses, especially SMEs, as they recover from the crisis.”
(1) To ensure a feasible and comparable data collection across our sample, 10.5% of total risk-weighted assets have been used as a proxy for equity. Therefore, the results reported here for RoE may not be directly comparable to the way leasing firms measure RoE internally or to some other measures of RoE.
(2) European Economic Forecast, Spring 2021.
The Leaseurope quarterly Index is in its forty-first edition.
Lectura joins Leaseurope as an associate member
