by David Woodroffe
Bank-owned leasing companies are not alone in facing an uncertain future, as banking as a whole grapples with a number of challenges. The global financial crisis may have been the initial catalyst, but today Basel III is the driving force behind the changes which are reshaping the sector.
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Across Europe, banks are now reversing their pre-crisis policies to expand the balance sheet and diversify into new areas. All lines of business are now under review, with many the of the largest banks speaking consistently in their annual reports of simplification, efficiency and increasing their focus on core business activities.
As for non-core business, many organisations in both the UK and continental Europe have already exited or divested a large number of products and business lines, including mergers and acquisitions, real estate, insurance and international portfolios.
In short, a smaller, more focused and, in some cases, localised organisation is now the target operating model in a new era of banking: one which aligns all parts of a bank with its overall business strategy.
In this context, the bank-owned asset finance company won’t necessarily retreat, but is likely to see a change in its composition.
Certainly its own strategy and operating model will begin to reflect the above-mentioned trends and, above all, alignment with the parent bank.
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By GlobalDataThis shift towards synergy is a clear move away from how asset finance companies have historically evolved, not only as standalone entities themselves, but often comprising their own very separate divisions and operational silos.
Within these companies, we may well see further portfolio run-downs and divestments in areas that are deemed to be non-core, especially longer-term liabilities such as aircraft finance. But that in itself is simply part of a continuing process that has been taking place over a number of years.
What’s most critical is that the bank-owned asset finance company can demonstrate efficient use of its bank’s capital and an appropriate risk profile.
In the search for cost efficiency, there is also sure to be an increased level of sharing, outsourcing and integration with other banking platforms – particularly those that monitor risk and support regulatory reporting.
What is more, as balance sheet returns are squeezed, sources of non-interest income are becoming more and more attractive to banks.
While the bank-owned asset finance company itself is unlikely to deliver such added-value services, it can provide them through an external partner – again ensuring close integration with the bank’s operational platform.
So, as banks continue to refine their operating models, there is both a challenge and an opportunity for bank-owned asset finance companies to develop stronger partnerships and operational synergies with their parent and add value to the organisation. And in so doing, there is enormous potential to improve income and ensure growth.
David Woodroffe is product director, asset finance at SunGard
