With rising levels of impairment and
insolvency making risk the dominant force in leasing strategy over
the past two years, how are European lessors ensuring the right
decisions are being made at national subsidiaries?
Brokers, frontline sales staff and
junior underwriters all over the continent are becoming
increasingly familiar with certain names: those belonging to the
risk management staff of Europe’s major lessors.
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As banks have stretched to gain as much
control as they can over the type of business they are writing,
voices from central headquarters have been heard more and more in
regional underwriting offices.
At BNP Paribas Lease Group, said UK risk
director Tony Taylor, risk decisions are still being made locally –
though with a few exceptions.
He explained that applications from clients
with particular exposure to difficult industries, or where there
are performance risks from a third party (for example, assignments
where collection is performed by the assigners), are often passed
on to Paris-based group risk director Damien Charon.
The biggest change, however, has been seen by
the retail and corporate risk functions. These divisions might fall
under the credit function of another leasing business – the first
deals with underwriting of smaller flow-rate business, and the
second with the mid- to large-ticket business.
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By GlobalDataTaylor said: “Categorically more business has
been referred by flow underwriters to the corporate risk team.
“We identified some months ago that the
economy was changing, requiring the group’s standard risk policy to
change to allow for more control.”
Statements from brokers working with BNP
Paribas Lease Group back this up, with one introducer saying it has
seen much greater incidence of risk personnel “looking in on” the
underwriters of brokered deals, especially in the middle to upper
middle ticket bracket.
Overall, though, Taylor said the vast majority
of the group’s UK lending is still approved locally, apart from
business involving joint ventures or partners with “a European
outlook”.
By contrast, De Lage Landen takes a much less
local view. Carlo van Kemenade, acting head of corporate risk
management and European COO, said DLL has an “enterprise-wide” risk
management strategy.
Dedicated taskforce
Since the onset of the crunch, he explained,
DLL has installed a dedicated, group-wide task force to monitor
risk across all subsidiaries worldwide.
“This task force is continually on top of our
risk activities globally,” Kemanade said. “It monitors changes in
risk within the market, and aligns underwriting strategies. The
task force cooperates actively with the local risk departments in
the UK.”
National-level subsidiaries, he said, are also
supported by teams at Netherlands HQ, which set up the automated
scorecards used to make credit decisions on small-ticket
transactions.
On deals above this size, he said, UK
underwriters have individual credit authority.
“Beyond this,” he said, “the department has
further authority, and the UK overall has authority through a
committee structure.
“If a transaction or overall customer exposure
exceeds the UK authority, it will be referred to Eindhoven and
subsequently to our parent, Rabobank, for decisioning also under a
committee structure.”
Meanwhile, fellow Dutch lessor ING Lease has
taken the middle ground on national autonomy. In the UK, it has a
single director, Owen Francis, responsible for both credit and
risk, who makes decisions based on a credit policy agreed with head
office in Amsterdam.
Unlike BNP Paribas, the credit and risk teams
are separate. Credit deals with underwriting decisions and due
diligence, while risk determines credit policy, as well as
portfolio reporting and non-credit related risks.
Above a certain limit in value, a spokesperson
said, deals go to Amsterdam for approval.
One company that seems to have remained
remarkably similar in its treatment of risk has been SG Equipment
Finance. A representative of the French lessor said the last 18
months has brought on little in the way of organisational change,
since it had already installed a fairly rigorous structure.
Whereas many lessors have traditionally
calculated risk on a deal-by-deal basis, SGEF calculates exposure
client by client – a practice it adopted historically.
SGEF said that due to having this group-wide
client-based risk strategy in place, it has avoided many risky
situations.
With Basel II not yet implemented in the UK,
British lessors have not yet had to work on an exposure model based
on client exposure, but it is something both BPLG and ING say they
are working on.
Despite the costs of putting such a system in
place, it seems to work well with current strategic thinking on
risk management.
Fred Crawley
