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The Leasing Market in EuropeThe Leasing Market in Europe
Jean-Marc MignereyJean-Marc Mignerey
Chairman, Leaseurope
CEO, SG Equipment Finance
Kyiv, February, 21st 2006
2
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
3
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)
4
II. The European Leasing Market (2)II. The European Leasing Market (2)
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
5
II. The European Leasing Market (3)II. The European Leasing Market (3)
0%
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GDP Growth
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UK
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The large, mature European markets:The large, mature European markets:
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II. The European Leasing Market (4)II. The European Leasing Market (4)
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
Several smaller mature or relatively mature markets
7
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GDP Growth
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II. The European Leasing Market (5)II. The European Leasing Market (5)
CH
NL
B
A
FIN
S
NO
DK
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II. The European Leasing Market (6)II. The European Leasing Market (6)
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
Several smaller mature or relatively mature markets
“Emerging” markets
9
0%
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60%
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100%
0% 2% 4% 6% 8% 10% 12% 14% 16%
GDP Growth
% o
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II. The European Leasing Market (7)II. The European Leasing Market (7)
E
HU
EE
SK
RO
CZPLSL
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0% 5% 10% 15%
GDP Growth
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II. The European Leasing Market (6)II. The European Leasing Market (6)
CH
NLE
B
A
HU
EE
SK
RO
CZPLSL
FIN
S
NO
DK
2 DISTINCT 2 DISTINCT GROUPSGROUPS
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II. The European Leasing Market (9)II. The European Leasing Market (9)
Top 10 represent 28% of the market
Top 20 represent 41%Concentration of European Parent Leasing Companies
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0% 10% 20% 30% 40% 50% 60% 70%
Market Share
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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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III. The Importance of Leasing (2)III. The Importance of Leasing (2)
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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III. The Importance of Leasing (3)III. The Importance of Leasing (3)
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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III. The Importance of Leasing (4)III. The Importance of Leasing (4)
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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III. The Importance of Leasing (5)III. The Importance of Leasing (5)
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
17
III. The Importance of Leasing (6)III. The Importance of Leasing (6)
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
18
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
CESEE Working Group