The Leasing Market in Europe

The Leasing Market in EuropeThe Leasing Market in Europe

Jean-Marc MignereyJean-Marc Mignerey

Chairman, Leaseurope

CEO, SG Equipment Finance

Kyiv, February, 21st 2006

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I. Leasing definitionI. Leasing definition

IAS17:IAS17: an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time

Otherwise definition varies from country to country

Can involve all types of assets e.g. cars, trucks, planes, trains, industrial and agricultural machinery, medical equipment, buildings, etc.

The common feature of the contracts being that the lessor retains the ownershipownership of the leased asset

A lessor benefitsbenefits from superior protection compared to a party granting an equivalent bank loan to finance the same asset

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II. The European Leasing Market (1)II. The European Leasing Market (1)

In the first 6 months of 2005, Leaseurope members financed assets worth approx 120 billion €120 billion €

+9.42% compared to the same period 2004

Of which:

104 billion new equipment & hire purchase production (+6.57%)

16 billion new real estate business (+30.5%)

Forecasted total new production for end 2005:

between 239 and 251 billion €

Similar to forecast for US which is expected to be just under 210 billion € (ELA)

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Leaseurope currently represents over 92% of the European leasing industry & has 31 members in both EU and non-EU countries

The European market is an aggregate of several different types of markets:

4 large & mature markets

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The large, mature European markets:The large, mature European markets:

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Several smaller mature or relatively mature markets

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Several smaller mature or relatively mature markets

“Emerging” markets

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2 DISTINCT 2 DISTINCT GROUPSGROUPS

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Top 10 represent 28% of the market

Top 20 represent 41%Concentration of European Parent Leasing Companies

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A concentrated market

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III. The Importance of Leasing (1)III. The Importance of Leasing (1)

LEASINGLEASING CAPITALCAPITAL INVESTMENTINVESTMENT GDPGDP

Leasing provides capital to finance investment at Leasing provides capital to finance investment at reasonable costreasonable cost

And this translates into a healthy economy, generates employment, promotes innovation (access to technology), can be used by the producers of goods and of services alike and can help expansion into new markets where capital expenditure is required

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Research shows that smaller companies in particular rely on lease finance:

Graph 1: SME's use of external financing in the EUsource: Exco Grant & Thorton survey of SMEs, 2001

0%10%20%30%40%50%60%70%80%

Percent of SMEs using Leasing Percent of SMEs using Bank loans

SME’s use of external financing in the EUSME’s use of external financing in the EU

% of SMEs using lease finance

% of SMEs using bank loans

* Indicates leasing > loans

Source: Grant & Thorton Survey of SMEs (2001)

40% of EU 40% of EU SMEs use SMEs use

leasingleasing

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Research shows that smaller companies in particular rely on lease finance:

Cheaper and sometimes onlysometimes only source of funds for high growth potential companies in information asymmetries

Driven by growth opportunities and not mainly by tax considerations

Easiest way to renew or buy new equipment – cash flow and asset based analysis

No collateral required as the leased asset acts as collateral

Leasing allows SMEs to survive & growLeasing allows SMEs to survive & grow

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Why is it so important to promote SMEs?

In developing markets: Enables renewal of obsolete fixed assets

Increases demand for (less skilled) labour,

Generates additional household income

Gives access to new technologies

Increases citizens’ wealth, consumption and GDPIncreases citizens’ wealth, consumption and GDP

In mature markets: Creates knowledge spillovers & encourages innovation

Presence of SMEs creates a variety of enterprises and encourages competition

Increases GDP , productivity and fosters innovationIncreases GDP , productivity and fosters innovation

*in 2003 approw. 20 millio SMEs in the EU-19, source: SME Observatory

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Leasing also benefits generally from the following advantages (retail and corporate customers):

Allows the lessee to finance 100% of the asset

Enables easy acquisition or renewal of equipment

Allows a firm to use equipment that it may not wish to purchase

Can be beneficial from a tax point of view

For the lessor:

Is less risky than equivalent debt (low or negative LGDs)

Leasing has a specific treatment under the EU transposition of Basel II

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Average recovery rates by seniority of corporate bonds and loans: a comparison with leasing

Recovery rates for leasing are as high as Recovery rates for leasing are as high as the best senior secured bank loansthe best senior secured bank loans

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The average penetration rate for Leaseurope was approx 15%15% in 2004

CESEE countries tend to have higher than average PRs:

IV. Leasing in CESEE countries (1)IV. Leasing in CESEE countries (1)

2000 2001 2002 2003 2004CZ 16.52% 17.57% 18.50% 18.00% 16.23% 17.36%

EE 27.99% 26.74% 33.98% 35.88% 32.47% 31.41%

HU 13.22% 17.44% 17.55% 21.97% 21.99% 18.43%

PL 5.68% 5.83% 6.69% 9.17% 10.93% 7.66%

RO 6.55% 6.06% 6.23% 6.34% 6.29%

SK 10.53% 13.14% 14.20% 14.94% 14.73% 13.51%

SL 12.73% 14.56% 19.78% 19.84% 16.72%

Penetration Rates Average

Leasing already is a major means of Leasing already is a major means of finance in the region !finance in the region !

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IV. Leasing in CESEE countries (2)IV. Leasing in CESEE countries (2)

Machinery Computers RTV Cars Big Tickets OtherA & CEE 16% 3% 28% 44% 4% 5%Benelux & CH 19% 20% 18% 37% 2% 4%France 30% 16% 29% 24% 0% 1%Germany 11% 10% 12% 54% 5% 8%Italy 47% 5% 18% 22% 8% 0%Mediterranean 36% 4% 31% 21% 0% 8%Scandinavian 19% 22% 21% 25% 6% 7%UK & Ireland 9% 17% 11% 29% 21% 12%

Share of equipment leased according to asset type & cluster:

Cars and road transport vehicles are the most important

Machinery represents 16%

IT equipment still small but will grow as the economy develops

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V. What do we expect from the Authorities?V. What do we expect from the Authorities?

A stable legislative, fiscal (and regulatory) environmentTax depreciation schemes should encourage

investment in capital equipment

Secure rules regarding the rights of ownershipBankruptcy laws must be suitable and execution easyRepossession procedures must be facilitatedCourt proceedings must be swift with consistent

decisions

Availability of LT financial resources

Transparency of corporate performance

Clear rules of corporate governance

Lessors need clear rules and stabilityLessors need clear rules and stability

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VI. Leaseurope’s Activities in the Region (1)VI. Leaseurope’s Activities in the Region (1)

A working group dedicated specifically to the region

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VI. Leaseurope’s Activities in the Region (2)VI. Leaseurope’s Activities in the Region (2)

A working group dedicated specially to the region:

Examines concerns relating to tax and / or leasing laws

Creates a leasing network in these countries

Provides information impacting the industry directly from Brussels

Organisation of an annual seminar hosted by one of the CESEE member countries to promote leasing in the region, technical advice, networks, etc.

Leaseurope is to launch a European-wide survey on the economic impact of leasing on SMEs to gain further understanding of the effects of leasing in different European countries – Ukrainian participation ?

The Leasing Market in Europe

Please do not hesitate to contact us for Please do not hesitate to contact us for further information on:further information on:

Leasing Statistics or

Economic Affairs Relating to Leasing

www.leaseurope.org

[email protected]

CESEE Working Group

[email protected]

http://www.leaseurope.org/

mailto:[email protected]

mailto:[email protected]

The Leasing Market in Europe

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