After double-digit sales growth, bank-owned asset finance companies are confident about the year ahead. Nick Huber and Janet Du Chenne of Leasing Life report.

The asset finance businesses of some of Europe’s biggest banks have made a strong start to the year. Some are reporting double-digit growth in the first six months, in stark contrast to struggling retail bank divisions.

The banks’ leasing businesses are confident about their prospects amid growing demand from small businesses and manufacturers, and for technology assets.

Lombard, the asset finance business which is part of Royal Bank of Scotland – which is 84% owned by the UK taxpayer – will lend more than £5bn (€5.7bn) to British businesses over the next year – up 20% from the previous year. In addition to wheeled assets, it will also lend more on less publicised areas like technology and, in particular, plant and machinery.

Alexander Baldock, managing director of Lombard, one of the UK’s biggest asset leasing companies, told Leasing Life it was seeing the strongest growth in manufacturing, the small and medium-sized enterprise (SME) sector, and commercial transport (buses and haulage).

Many companies delayed renewing assets during the recession but have begun to invest again.

“Most businesses are six years into what is usually a four-year replacement cycle [for assets],” Baldock said.

The various types of asset finance, such as taking out an amortisation loan, has helped those companies to start investing again as economic recovery increases demand for goods. The flexibility of asset finance has proved especially attractive to business during a time of credit scarcity, said Baldock.

Other bank leasing subsidiaries have also reported a significant improvement in the market.

Société Générale Equipment Finance (SGEF) increased new loans by 19% during the first quarter of this year. Excluding factoring activities, SGEF’s new business was €1.8bn. In Germany, sales increased by 26%. In France, SGEF signed an agreement with La Banque Postale, the banking subsidiary of the French national postal service, for an equipment leasing partnership.
Euro growth

Specialised Financial Services, which includes the French bank’s consumer finance, equipment finance, operational vehicle leasing and fleet management activities, grew its net banking income by 7% to €728m, compared to the same quarter a year earlier.

Dutch asset financing provider De Lage Landen is confident about its prospects after reporting a net profit of €201m last year, a 79% increase in comparison to 2009. It expects a net profit of around €120m for the first six months of the year, and around €280m for the full year. Achieving these figures would create a record year for De Lage Landen.

Chief executive Ronald Slaats said the company’s optimism is because vendors are selling more and requiring financing. “Our international network is helping us in this regard,” he said. “Vendors want international solutions and want to sell into more than one geography.”

Slaats added that vendors in Asia, for example, want to sell more outside their home market, into countries such as Brazil.

Finland’s Nordea saw a 13% increase in sales for its asset and sales finance arm for the first quarter of the year compared with the same period last year. Nordea Finance chief executive Jukka Salonen said the main increases were seen in the small businesses and consumer segment, notably in consumer credit and car finance. Sales have increased in smaller equipment and yellow goods, he added.

Salonen also said there had been more sales to smaller businesses than larger corporations. He suggested the latter group is more hesitant to invest given uncertainty about the future and because it is able to rely on existing capacity.

Salonen added smaller businesses, especially in the transportation sector, are increasing consumption which is giving more work to companies. “Construction has been another area that is picking up”, he said. “We hope the bigger companies will start their investments in the near future.”

In motor finance, banks’ asset finance businesses have also made a good start to the year.

Arval, part of French bank BNP Paribas, has predicted “strong growth” for 2011, especially in rapidly expanding new markets, such as Brazil, India and Turkey, where growth rates have been over 50%.

Growth in banks’ asset finance arms may help them counter criticism that they are not lending enough to small businesses.

A spokesman for the British government’s Department for Business Innovation and Skills said: “The government is committed to increasing the diversity of finance available to businesses, and encouraging businesses to think carefully about what sort of finance is most suited to them.

“Asset-backed finance is one potentially useful source of finance, particularly for businesses who are looking to update or replace their equipment.

“Solutions such as leasing and hire purchase can help facilitate growth, as they offer finance when new equipment is needed to expand a business.”

Regulation

However, despite good prospects, some bank asset finance businesses could be affected by cuts in certain markets as their parent companies ration their lending.

Barclays, for example, has decided it will 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.

A spokeswoman for Barclays said that Barclays Corporate continues to provides asset finance to coporates, including health care, transport and the renewable energy sector.

Barclays continues to offer a “broad range” of finance for SMEs, she added.
Although leasing typically produces a higher return on equity than more risky unsecured bank loans, asset finance “is not particularly well understood at a senior level at some banks”, warned George Tonks, a partner at asset finance consultancy Invigors.

Tonks said banks may decide to reduce lending in their asset finance arms and prioritise more high-profile lending such as unsecured bank loans when preparing for the capital requirements of Basel III, which is due to introduced by the end of 2012.

Article contributed by Leasing Life