An uneven economic recovery, ongoing issues around supply chains and the latest Covid variant have left French leasing companies – the engine room of the European lease industry – uncertain about the near-term prospects for their domestic market. Che Golden reports
The French leasing market is very healthy, according to Ralph Samuel, general manager at DLL France. “Leasing remains one the preferred solutions for companies when it comes to financing their equipment and development,” he says. “French legislation has helped us by making leasing a secure lending structure for leasing companies, but also a convenient and business-friendly choice for companies.”
France: country report
Samuel estimates that after falling by 18 per cent in the 1st half of 2020 and being flat during the 2nd half of 2020, the French leasing market has soared by 26 per cent over the 1st half of 2021 and is now back to its pre-crisis level.
“The French leasing market is one of the largest in Europe with close to €30bn new business volume expected in 2021,” he says. “It has proven resilient to the crisis with limited risk costs. Only some specific business sectors have been subject to loan impairment, such as travel, tourism, school transportation and the fitness business. Government financial support to companies, via state loans (prêts garantis par l’Etat) played a significant role in limiting the impact of the crisis.”
However, Frédéric Andersson, head of Leasing at ING Bank France says that these figures, while very positive at first glance, do not tell the whole story.
“French leasing has overall enjoyed strong growth in volumes for the first nine months of 2021 when compared with 2020,” he says. “However, when putting things into perspective by putting aside 2020 and comparing with 2019 – prior to the pandemic – growth is limited to 1.8 per cent to reach €23.5bn.”
He points out that 2021 was an anomaly that skews the figures, and that supply chain shortages are proving to be a bigger drag on growth than the numbers would suggest.
“The activation of contracts suffered from the delays in the delivery of equipment due to the chip shortage and the transport squeeze,” he says.
“A number of equipment deliveries have been postponed until 2022. In that sense, 2021 has been a special year and we expect the market to return to normal in 2022, where the leasing market should further benefit from the growing economic environment in France,” he adds.
But there has been growth, mainly driven by the SME sector that had the confidence to keep investing due to the financial support offered by the government during Covid. France was also able to keep bankruptcies to a minimum, making sure firms stayed solvent and able to return to more normal activity when the worst of Covid had passed.
“2021 shows a resumption of activity in the French leasing market in the sectors that suffered last year,” observes Olivier Delaporte, deputy CEO of Franfinance.
“In addition, government measures have kept corporate bankruptcy in France to a historically low level. In this context, we provided more financing solutions to SMEs compared to last year,” he continues.
“The activity with large corporates remains high but not only focused on IT investment. We can see investment needs in industrial, construction and transport sectors. However, increased delivery times due to shortages in the supply of electronic components and price increases in raw materials shall affect the pace of the recovery.”
Digitisation and the search for improved customer experience are features of the French lease market that are familiar to other markets around the world explains Thierry Montheil, head of French desk for SGEF.
“In addition, business opportunities linked to CSR topics and green financing are being actively investigated,” he says. “Health, renewable energy, and asset life cycle management are among the key topics for the industry.”
According to Montheil, SMEs have been the engine that has driven growth in sectors that really suffered last year due to Covid. The medical sector remains dynamic, while IT shows a decrease mainly due to high levels of investments in 2020.
There is high demand in the industrial sector including transport and construction equipment although the return to growth in these sectors is being slowed by supply chain issues. Montheil is seeing delays from three months or more for IT equipment to at least six months for transport and construction equipment.
Grenke has been working hard to position itself as a financier for SMEs. “We support small and medium-sized enterprises and the self-employed with smart financing regardless of their size and needs,” says Laurent Wittmann, managing director Grenke France.
“In this respect, we have been working for several months on flexible solutions which aim to have a modulation of their costs according to their peaks of activity,” he adds. After a quieter period during the first lock-down period we are seeing a clear upturn in activity.”
The company has also had to work hard to keep its reseller network afloat. “We operate in the French market through many partnerships with resellers,” explains Wittmann. “We had to review our work organisation in order to continue to support our network of 5,000 partners as well as for our hirers.”
Examples of this activity include offering deferred payment solutions for those who have requested them and who needed support. Wittman says this was greatly appreciated and tested Grenke’s agility by being able to set up a new process in just a few weeks.
“The electronic signature has also been very successful and allows us to sign the rental contract with the hirer digitally,” says Wittman. “In France, we now settle half of all contracts digitally.”
According to the ASF, Association française des Sociétés Financières, French lessors proactively managed the impact of the crisis on their clients during 2020 and 2021.
In 2020, they proposed moratoria on leasing instalments, up to 6 months moratoria in general and up to 12 months for corporates in the tourism sector hit by the covid crisis. At the end of 2021, there was no increase in the cost of credit risk, which remains very low, the association reported.
The ASF added that lessors have also been actively engaged in green finance and are committed to providing statistics on green real estate and equipment leasing (including clean cars) from 2021 onwards.
Uncertainty remains high
Looking ahead, Delaporte is confident that the positive economic news from France will keep getting better. “However, with the Covid crisis ongoing, uncertainty remains high,” he says.
Samuel agrees that another Covid surge could undo all the progress the industry has made in getting back on its feet and has the potential choke any new growth in 2022.
“The second half of 2021 is expected to be very dynamic, although impacted by delivery shortages, especially in the construction, industrial and agricultural sectors,” he says. “Therefore 2022 is expected to be another strong year as orders and deliveries that were deferred will be financed next year. In addition, we expect a strong economic performance unless the impact of Omicron or other Covid variants slow down business again.”
Overall, the French leasing market is expected to grow. According to the ASF, equipment leasing with no purchase option has been growing fast in the first two quarters of 2021 (+31.4 per cent compared to 2020 and +8.6 per cent compared to 2019), but equipment leasing, in general, is growing.
Samuel says innovative products such as pay-per-use combined with a stronger emphasis on sustainability (e-mobility) and digitised processes will enable companies to match the leasing solution to the specific needs of the customer. The 2024 Olympic Games that will be hosted in France and the Grand Paris infrastructure project are both expected to produce a huge uptick in investment in infrastructure equipment.
At first glance, the third-quarter figures for the general economy would bear up this optimism. France’s economy grew at a faster than expected rate of 3 per cent in the third quarter, fuelled by a pick-up in consumer spending and exports. But investment bank ING sounded a note of caution, pointing out that the 0.9 per cent rise in industrial production in France in October was driven almost exclusively by aerospace construction.
This means French industrial production is still 4.5 per cent below its pre-crisis level (-5.3 per cent for manufacturing). October’s rebound is largely attributable to a strong increase in production in other transport equipment (excluding automobiles), which rose by 13.9 per cent in the month, driven by aerospace construction.
However, this sector remains heavily impacted by coronavirus, with production still 19.6 per cent below its February 2020 level, as is also the case in automotive production (-29.9 per cent below its pre-crisis level).
While any kind of growth is good news after the last 18 months, these are delicate shoots of growth at a time when we are seeing a new wave of the virus in the form of the Omicron variant. ING warns that the current health situation risks slowing down the French economy once again and the new international travel restrictions are not good news for French aeronautical production.
With the expected slowdown in global growth, industrial production growth in France could slow in the coming months. Even without further restraints, economic growth will probably slow down more than the consensus expects in the fourth quarter of 2021 and the first quarter of 2022.
But as the ASF pointed out, the economy needs financing, especially when support measures by the state begin to withdraw. Leasing continues to be a popular choice for businesses and proposals by the European Commission to implement the Basel III agreement is a clear recognition of the major role that leasing will play in the financing of the European economy.