As Leasing Life’s new editor, I have been
told that regulation, taxation and business integration are the
three themes I should care most about.
Everyone in the sector I have spoken
to so far has mentioned these issues, and it’s clear to see the
impact they have already had.
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I have learned that regulation remains
a crucial concern for the sector, as legislation such as Basel III
forces banks to look at how they can reduce their costs.
As such, some banks with leasing
companies see the integration of those businesses into their
corporate lending arms as one way of cutting those costs and
increasing efficiencies. Examples of this integration can already
be seen.
In addition to Basel III, the
introduction of the lease accounting standard will also have an
impact on the way companies conduct their business.
While the current model does not
require operating leases to be reported in company accounts, the
requirement of the new standard to report these leases on balance
sheet may lead to onerous reporting requirements.
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By GlobalDataI expect that these themes will come
up in conversation on a daily basis. What is important to focus on,
however, is how companies are adapting to these changes.
Barclays, for example, is changing its
model and has decided to no longer provide asset finance to
companies with turnover less than £5m a year, saying the need for
asset finance among larger companies was not shared by its smaller
customers.
This is one example of how companies in the industry are
rolling with the changes. A different side of the story can be
found among the brokers, who are actually focussing more on SMEs as
these businesses struggle to find financing.
It is also worth noting that the main
reason Basel III was introduced was to avoid another financial
downturn. Loans provided to some companies at sub-100 bp are said
to have precipitated that crisis.
When the economic downturn hit and
companies were less able to pay back the loans, the loans turned
bad, and remain on banks’ balance sheets today.
The trick is learning from the past to
minimise the likelihood of future mistakes happening or be in a
better position financially to weather those mistakes potentially
happening again.
I was told by a respected asset
finance expert that the one way banks might do this is to go about
their business not only as lenders, but also as equity providers.
For example, instead of lending £100,000 as a loan to companies,
provide £70,000 as loan and the rest as an equity investment,
including warrants.
This will not only increase their
earnings potential but also offer banks more security over the
assets in the event of a bankruptcy by the client. The way forward
seems to be to focus less on the uncertainty created by the above
themes and thinking more about some of the business changes that
could be made in preparation for the wider industry changes.
I look forward to exploring some of
these ideas with you in due course.
Janet Du Chenne
janet.duchenne@vrlfinancialnews.com
