A recent survey of some 200 European
leasing companies, conducted by consulting company Ineum, revealed
that reconciling national-level risk priorities with group-wide
strategy will be a major issue for leasing networks over the coming
year.
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The study, directed by Eliana Boudet, head of
risk services at Ineum and formerly of SG Equipment Finance, found
that more than 50 percent of participants were actively engaged in
creating new risk strategies, and that risk of client default was
by far the greatest among lessors’ concerns for upcoming months.
Asset devaluation, by contrast, was found likely to become a source
of less concern, despite increased recovery difficulties.
Another major issue over the next year will be
‘concentration risk’, a phrase used to describe the risk associated
with investing heavily in particular sectors, national markets or
assets. This risk can be somewhat mitigated in a leasing network by
the disposal of recovered assets through subsidiaries in different
national markets.
According to Boudet, respondents’ perceptions
of risk were markedly different at group and national levels.
Liquidity and market risks (from exposure to interest rates, forex,
etc) were not huge concerns at group level, but had a much
increased importance at national level due to the volatility of
individual national economies.
Another problem identified was the pressure
for more risk decisions to be shared with central risk functions –
a pressure that can work against the ability of subsidiaries to
make quick decisions.
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By GlobalDataBoudet commented: “The difficulty is often in
giving national entities the ability to make risk decisions based
on local knowledge, while still adhering to a global view.”
According to the study, however, there are
possibly exceptions to this. “One can work with them on big
exposures, such as deciding when to litigate against a
counterparty. In that instance, whether the decision is made to
hold back and expose further, or act and possibly destroy the
relationship, will affect the necessary level of provision,” it
said.
The report also made clear that as competition
begins to return to the market, speed of decision making will only
become more important for lessors.
