Leasing Companies are On Track for Expansion
How You Can Increase Your Business Volume Through Quick and Reliable Refinancing
The leasing industry is growing and leasing companies are investing in ever new assets. For their refinancing they need reliable partners. NORD/LB’s experts explain why the leasing business is expanding despite the current phase of low interest rates.
The Leasing Industry is Growing
More and more companies are leasing their movable assets instead of financing their investments through their own available liquidity or through bank loans. The leasing payments are calculated - taking into account the tax framework - in parallel to the usage of the investment asset. The leasing expense is thus spread out over the useful life, which is individually agreed with the lessee and, thus, over the period in which the income is generated by the investment asset. In this way, customers are able to adjust their production capacities to the order situation and always use state-of-the-art machines and production facilities. For lessees, such an approach often has tax benefits and preserves their credit lines and balance sheet ratios.
The automobile sector still accounts for the largest share of the German leasing market, yet there are other assets that are leasable, too. For example, IT hardware and software, accommodation containers and office containers or company bicycles.
When the economy is growing strongly then the leasing industry benefits accordingly. Yet, even during times of low economic growth the leasing industry has been able to expand its business. “The leasing ratio in good years is about a 21 to 25 per cent share of equipment investments in Germany and in the not so good years between 20 to 23 per cent”, as Olaf Rösel, Group Head of NORD/LB’s Leasing Department knows and he adds: “According to surveys by the BDL (Association of German Leasing Companies), for many years now, German leasing companies have established themselves as a key pillar of investment activity in Germany. More than Euro 50 bn of investment volume and more than 20 % of equipment investments for the economy as a whole are provided by the leasing industry in Germany every year:” Moreover, leasing companies are tapping into new market segments and customer groups through new asset types that are leased out. Besides private customers, who predominantly lease cars, or companies, which lease their car fleets but also their machinery and IT, municipalities are increasingly asking about the possibility of, for example, leasing street lighting, or - currently - accommodation containers for refugees.
NORD/LB Takes Over the Refinancing for the Leasing Companies
In Germany there are about 150 manufacturer-independent, medium-sized and owner-managed leasing companies. For many companies, the NORD/LB has been a reliable partner for refinancing for more than 30 years. NORD/LB is the market leader in this segment and covers the major share of this market. NORD/LB’s expert Michael Fuhrmann, Deputy Group Head of the Leasing Department explains: “One of our principles is that we wish to provide backing to leasing companies in such a way that their entire portfolios are reflected in our refinancing portfolio.” NORD/LB supports all the asset areas of their customers and, as a result ,it has built up extensive market expertise. Leasing companies that are on track for expansion can be sure that BLB will hardly reach its volume limits. “We provide added value for our customers through consortium loans or syndicated loans. If the customer’s business is growing then we are able to provide support because we offer solutions”, explains Olaf Rösel.
Low Interest Rates and Regulatory Pressure are Challenges for the Leasing Industry
In the current phase of low interest rates, the issue that concerns the leasing companies in particular is how is it still possible to generate margins that will sustain a business. In addition, these institutions face the challenge of excess liquidity in the market - the result of the ECB’s current policy. As it is hardly possible to generate profits on the investment side, individual institutions are increasingly pushing into the business of lending to small to medium-sized companies. As banks and banking subsidiaries are able to obtain money from the central banks on more favourable terms than small to medium-sized leasing companies it is not uncommon for this to result in ruinous competition when these banks finance loans with correspondingly low margins. NORD/LB therefore maintains regular contact with leasing companies in order to adjust their contractual terms. The regulatory requirements of the Federal Financial Supervisory Authority (BaFin) likewise mean that the leasing companies have to invest a huge amount of resources in terms of expenditure as well as time. Olaf Rösel explains: “The small to medium-sized leasing companies are now also regarded as being financial services institutions. Therefore, they have to fulfil roughly the same requirements as the banks with regard to credit strategies and reports. For a small company with few staff this is difficult to achieve.”
Short Processing Times, Personal Support
Swift processing of requests is vital for customers. NORD/LB scores points for the speed of its response to customer enquiries: “A leasing company receives a reply on the same day, or at the latest 24 hours after the enquiry”, explains Michael Fuhrmann. This is made possible through the use of high-performance administration software, among other things. This ensures that the management of the contract portfolios is professional and extremely quick. Several leasing agreements can be combined and settled in one refinancing account. Calculations are easy, all types of financing and settlement amounts can be shown and it is even possible to calculate the indicative repayment amounts in the event of an early (partial) repayment of the financings. NORD/LB’s advisers also help the business to run smoothly. The team consists of proven industry experts who for years - some of them for decades - have been looking after their customers. They have special expertise, they make time for their customers and they cultivate personal contact with them. Time and again, there are also discussions with customers about general business management issues. One subject that affects leasing companies, like all small to medium-sized companies, is the issue of company succession. In the case of owner-managed companies, succession is not always sufficiently well planned. Here, a consultation can result in succession arrangements being put in place that are in the interest of the owner.
NORD/LB also Provides Specific Financial Instruments
Energy contracting is a special form of leasing that encompasses servicing and other services in addition to the leasing of the asset and is normally arranged over a longer maturity of ten to fifteen years. NORD/LB is happy to provide assistance in bringing together partners for the widest range of contracting projects and, in the course of this, it is able to draw on its large network of leasing companies.
NORD/LB also provides support to leasing companies by having other financial instruments available. Through the non-recourse sale of receivables, for example, leasing companies are able to direct and optimise their credit risk strategies. Here, BLB takes over the credit rating of the lessee through a non-recourse purchase of the respective leasing receivables. Consequently, if the lessee defaults on its payments there will be no recourse to the leasing company.
NORD/LB’s extensive experience and reliability thus provide leasing companies with business and growth opportunities.