The Alta Group Surveys Leasing in Europe for Leaseurope Annual Conference

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Profitability/volumes and returns on capital. How to increase turnover and the hunt for business. Maintaining good-quality staff. These are the three most concerning issues that keep chief executives of European leasing companies awake at night.

Profitability/volumes and returns on capital. How to increase turnover and the hunt for business. Maintaining good-quality staff. These are the three most concerning issues that keep chief executives of European leasing companies awake at night. How do CEOs view growth prospects? What does the leasing industry think of compliance?

The Alta Group, at the request of Leaseurope, conducted a comprehensive industry survey across Europe of CEOs’ views on a variety of topical issues. The results were presented by Alta Principal Derek Soper at Leaseurope’s Annual Conference at the beginning of October.

Soper said: “There are some marked differences compared to the 2003 survey that Alta conducted on behalf of Leaseurope as some of the anticipated activity failed to materialise. Our first reaction on analysing the results was that some countries and companies still believe their leasing business is ‘unique’ – this is difficult to understand. It is clear that the prevailing areas and subjects of concern are common across Europe. Generally, companies are optimistic about their performance and prospects but not about their country’s economy.”

The European leasing industry is mainly bank owned which explains why there was frequent reference to “the parent bank,” “servicing bank customers” and “the bank wants us to do this.” It also confirms that bank parents are very much in the driving seat of their leasing subsidiaries’ activities and suggests increasing integration of leasing into the banks - in contrast with the 2003 survey.

In the current climate in Europe of depressed company earnings, pressure on short-term margins and fairly pessimistic GDP forecasts, Soper is surprised that almost all CEOs expect growth year on year for the next three years. He said: “If the business sentiment is correct, where will this growth come from? Looking into my crystal ball, my thoughts are that it could come from: new products and services, investment in more technology, mergers and acquisitions, banks thinking about exiting leasing and therefore selling their leasing businesses, or international expansion in new markets, not least of all places such as China and India.”

Regulation/supervision

Many CEOs believe that regulation or supervision is positive for their business, with supervision affording them protection from the outside world. There is almost universal support for Basel II and the forthcoming changes to the capital adequacy requirements, with improving asset quality anticipated as a positive outcome.

IAS17 - accounting for leases - does not feature as much of a concern, maybe because few CEOs have formed an opinion of the impact it will have on their business. It is surprising that there is little evidence of “new product” activity in the light of operating leasing portfolio implications.

Business prospects

Most CEOs are confident that the leasing market will grow during the next three years and, in an upbeat mood, no one expects a decline for the next three years. But where will growth come from - see table 1.

Table 1: Growth sources

Domestic 87%

Europe 67%

Outside Europe 19%

A change in direction 13%

Other new services 21%

Acquisitions 24%

Margins remain a perennial problem with most CEOs anticipating a reduction in the short to medium term and over two thirds of respondents believing that leasing produces an unsatisfactory return on capital. Looking further ahead, there is some optimism that longer-term margins will improve but no one is advocating better margins from increased services – or perhaps this is secret.

Human resources

A shortage of quality staff over the coming years is exercising CEOs’ minds. There is a very strong trend of reducing the size of the back office and increasing the number of sales and customer facing support staff as well as a growing reliance on bringing in staff from the parent bank.

Top of the list of training requirements that are seen as contributing most to the success of the business are: basic leasing skills for new staff, selling and marketing, training the vendor and asset management.

The IT conundrum

There is still little evidence of e-commerce delivery although a quarter of CEOs are planning to do so. The software spend is increasing significantly but there were many negative comments, for example, “no good suppliers,” “the spend is mostly about Basel II” and “takes too much management time.” This suggests that CEOs know that they have to commit resources to IT but do so reluctantly.

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Margaret Waldren

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