It is regrettable that the banks, as
the main funders for leasing, at present see little possibility of
providing financing for this vital sector.
In the financial markets only a small number
of problems are concerned with leasing, mainly because of
excessively high residual values in certain car leasing
transactions.
Leasing, however, is a transparent form of
business for any bank and it can easily and effectively be set out
in mathematical terms, with its repayment arrangements and interest
rate provisions.
Apart from a bank loan, there is no better
financing alternative for leasing companies than regular lease
payments from lessees. Private equity is not an effective
alternative because the yield necessary for that system is not paid
by any first-class lessee under the terms of the contract of
lease.
The special character and the particular
attributes of leasing must not be jettisoned, even at a time of
general economic crisis. As soon as the banks can breathe again
they will show greater readiness to resume their financing function
in the leasing sector.
By that time, unfortunately, some small
leasing companies will have gone to the wall for lack of a sound
financial base, and a certain amount of consolidation will take
place.
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By GlobalDataBut this will not turn the whole sector inside
out, as many medium-sized leasing companies have a strong financial
position and will be in the future – as they are now – excellent
borrowers for the banking sector.
Of course, we must not allow lessees to
activate ‘Rights of Use’ in future, on the model of the crude ideas
of a Warren McGregor [a member of the International Accounting
Standards Board – Ed.].
That would turn the leasing product upside
down and create the illusion of an asset, which can do nothing
except confuse the reader of a balance sheet. We must retain the
system of declaring the future payment obligations resulting from
contracts of lease in the notes.
I can only appeal to the leasing companies not
to abandon tried and trusted business models.
The customers for them – even though there is
currently a decline in demand volume of more than 10 percent, with
big ticket contracts especially hard to secure through lack of
refinancing – will continue to be there in the long term, and after
the crisis will appreciate the services of a successful and
high-performance leasing sector.
The author has over 35 years’
experience as a manager in the leasing industry, and has been
chairman of Cologne University’s institute for leasing research for
24 years.
