Scandinavia on the rocks

Undoubtedly, Nordic leasing
companies have been hit hard by the economic downturn. Construction
equipment and vehicle leasing have performed the worst over recent
months, according to latest information, and arrears are up.

But there is at least a glimmer of
hope as the plunge in economic activity that took place earlier
this year seems to be levelling out, and a slight recovery is
expected as early as next year, according to local economists.

New leasing business declined in
most sectors throughout the region during the first quarter of this
year. In Norway, according to Anne-Lise Løfsgaard, who heads the
country’s leasing association, heavy commercial vehicles leasing
volumes dropped 28 percent, cars and vans went down 31.8 percent
and industrial equipment declined 25.3 percent.

In Finland, leasing is faring
slightly better, although not across all sectors. New business in
the first three months of 2009 increased from €250 million to over
€300 million but, according to Reima Letto, senior adviser at the
Federation of Finnish Financial Services, consumer hire purchase
and car leasing have been eroded by falls in new car sales.

Meanwhile, Henrik Bech-Hansen,
chairman of the Danish leasing association, said that his
“guestimate” is that first-quarter 2009 sales will be around 50
percent down.

Also, in Sweden, according to
Stefan Jonsson, syndication manager at SEB Leasing and Factoring,
one of the big players in the local marketplace, the company’s
leasing business has worsened compared with the first quarter of
2008 – with trucks and trailers hit the most. Factoring is
increasing, however, he added.

Interestingly, the large-ticket
sectors – ships, aeroplanes and trains – saw an increase in
business over recent months in Norway and Finland.

They remain, however, relatively
small parts of overall leasing portfolios, particularly compared
with industrial equipment and vehicles which, in Norway, for
instance, are respectively 35 and 31 percent of the market.

In line with most of the rest of
Europe, there has been an overall increase in margins.

“Margins towards customers are
increasing, because the liquidity has been low and the money has
been very expensive. Competition has been very tough on margins in
the last years and now they are going up,” Løfsgaard said.

Similarly, lending margins have
increased in Sweden and Finland owing to higher refinancing
costs.

In Denmark, according to Henrik
Bech-Hansen, margins have increased significantly, which would mean
that the 50 percent decrease in new business he is “guestimating”
will effectively be less than that.

The negative trends mean that some
companies could pull out of the market, or there could be some
consolidation later this year.

According to Løfsgaard, some
Norwegian association members have been contacted by companies
asking if they could take over their portfolio, although nothing
has happened yet.

“But I would be surprised if
nothing happens, I think somebody will be pulling out of the
market,” she said.

Similarly, in Denmark, medium-sized
lessor NV Finans stopped leasing and exited the market last year
after its parent company decided against using its capital for
leasing.

Christian Brandt, the head of
Denmark's leasing association, said that it will be
interesting to see how many members of his association there will
be at the end of the year.

“Will the crisis mean that there
will be consolidation?” he added. “And what is going to happen to
the foreign leasing companies? There aren’t many Danish small
players that you’d fear they wouldn’t survive.”

He went on to say that some local
branches of European companies could temporarily withdraw their
activity from the Danish market, although there is no sign of this
so far.

The general outlook is that 2009
will continue to be a challenging one, as Reima Letto highlighted:
“The poorer performance of small and mid-sized businesses is likely
to reduce their willingness to invest.”

However, a recent study by Nordea
economists gives some hope for the not-so-distant future. According
to the company’s economic outlook for 2009, in Sweden “signs are
emerging that the bottom is near, and an uptick in exports is
expected to contribute to a recovery later in the year”.

Similarly, the downturn in economic
activity seems to be levelling out in Denmark and Finland, and a
cautious upturn in economic activity is expected during the second
half of 2009. Meanwhile, Norway, despite having a
deeper-than-expected decline in investments, seems more resilient
than many other countries.

This has also happened thanks to
the prompt reaction of local governments to the crisis. For
example, the Norwegian government invested a lot of money in the
construction industry, which will eventually help many lessors
too.

But it might take some time before
the potential benefits of the government action are seen.

Antonio
Fabrizio

Bad debt, arrears up in
Scandinavia

Arrears, bad debt and
writedowns have increased throughout Scandinavian asset
finance.

In Finland, non-performing
receivables increased to 1.13 percent from 0.97 percent, while
credit losses decreased from 0.18 to 0.12 percent.

In Norway, members of the local
leasing association say that their losses have gone up and expect
the trend to continue.

“It might level out a bit, but
there have been some bankruptcies, which have of course affected
the business of several lessors,” Anne-Lise Løfsgaard said.

She expects absolute losses to be
as high as 0.8 percent, compared with around 0.4 percent over the
past few years.

In Denmark, according to the
association’s director Christian Brandt, there is generally
negative credit information and a worsening in bad debt.

“The number of businesses that
can’t pay has gone up in the last months, so this is a big issue
for our members at present, and the people dealing with it are
getting busier and busier,” Brandt says.

Swedish-headquartered banking group
Nordea, which includes leasing subsidiaries in all Nordic
countries, has recently published first-quarter results, showing
that total net loan losses were €356 million, 11 percent up from
the previous quarter.

The losses, which the banking group
said were 54 basis points of total lending, mainly stemmed “from a
large number
of smaller and medium-sized exposures, rather than few large
exposures”.