The seventeenth edition of Leaseurope’s quarterly survey showed new business volumes at €16.8bn at the end of Q1 2015. This is a continuation of the positive trend observed throughout 2014.

Managing director at Italian firm BCC Lease, Piero Biagi, tells Leasing Life that the considerable increase in new business volumes is due to a rise in business confidence across Europe, as economies recover from the 2008 global financial crisis.

He adds that the increase could also be a result of the industry starting from a low base following the effect of the economic crisis.
Biagi says: "In some markets there was a big decline in leasing volumes because of the economic crisis, so now it’s relatively easy to witness growth.

The UK, Sweden, the Netherlands and Germany which haven’t seen a big drop in volumes are also growing at the moment. The European economy is performing better than in the past and this affects the confidence of businesses to invest."

The portfolio of outstanding contracts remained broadly stable, declining by 0.2% year-on-year, while risk weighted assets (RWA) decreased by a larger amount (-2.2%).

"This highlights the declining portfolio risk leasing companies are currently experiencing," wrote Leaseurope.

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Total pre-tax profit increased by 8.7% for the 17 respondents in Q1 compared to the same period in 2014, reaching €849m.

The average profitability ratio also increased from 32.2% to 40.2% over the same period, the highest on record in the survey’s history.
Biagi says the improved profitability is a result of lessor’s investments in internal reorganisation.

"I think there was a lot of work done by the leasing companies especially on productivity," he says. "They have invested in IT systems, credit score systems, recovery systems and outsourcing in order to have better profitability."

Operating income grew by 8.7% year-on-year in Q1 2015 at €2.1bn, while operating expenses increased by a smaller amount (3.6%) reaching €928m. As a result the average cost/income ratio fell to 44.9% in Q1 2015 compared to 46.5% in the first quarter of 2014.
Commenting on the lower cost/income ratio Biagi says: "There was a significant drop in cost/income ratio from 2012 to 2014.

Cost/income ratio of the equipment leasing segment fell from 43% in 2012 to 35.7% in 2014, which is an excellent level. It is a bit more difficult for the car leasing sector to reduce its cost/income ratio because of the services they provide, but it did witness a decrease from 50% to 45%."

Loan loss provisions decreased by 22.1% to €313m in the first three months of the year compared to the same period in 2014, making it the fifth consecutive quarter of declining loan loss provisions.

Global head of ING Lease Patrick Beselaere says: "Provisions have been made for the losses of the previous years. The portfolio is sound, so it means that we don’t have to add that much to provisions for the new business.

"It’s not that the sector was not well organised or that companies were picking files which were too risky in the past. The economy is always a story of cycles; the last few years there was a downturn cycle where many companies struggled to survive. As a consequence, lessors’ level of bad debt and their non-performing loan book was affected, and they had to take provisions. There are not many new bad files coming up."

Another important indicator of the improved performance of the European leasing market is that the average annualised cost of risk fell to its lowest level in three years, dropping to 0.58%.

Return on assets and return on equity ratios increased significantly in the first quarter of 2015 compared to the first quarter of 2014, to 1.7% and 206 (2010 = 100) respectively, reaching their highest values since the inception of the survey. These high figures are due to strong profitability increases despite stable leasing portfolios and declining RWAs.

"The lower cost of risk is improving return on assets and equity,"says Beselaere. "Simultaneously organisations have become more efficient and that means productivity has risen, which is also an important driver of return on assets and equity. On the contrary, the excess liquidity in the market has dropped margins. However, the negative force on return has been more than compensated by efficiency and risk costs which have improved."

Jean Pierre Vissers, executive vice-president of DLL Vendor Finance Europe and a Leaseurope board member, believes the increase in domestic demand in Europe will trigger growth in the leasing market.

He says: "As domestic demand in Europe continues to strengthen into 2015, investment levels should also pick up, a good sign for continued high performance in the leasing business."

The industry professionals Leasing Life spoke to anticipate the European leasing market will continue to witness growth over the next quarters of the year, although they express their worry about the uncertainty created across Europe, while searching for a solution for Greece, as it can be barrier for companies to invest.

Biagi believes there will be differences in the performance of leasing for movable assets and real estate.

"Real estate was deeply affected by the crisis, particularly in southern countries," he says. "I think the trend of real estate leasing is almost flat except some possible big-ticket transactions. On the other hand, I think movable assets – equipment and vehicles – will perform well throughout 2015. I think it’s a good year for cars and equipment leasing machinery, which will probably be the main drivers for new business volumes."