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December 8, 2016updated 12 Apr 2017 3:44pm

On the up for Spanish leasing

The Spanish leasing sector has enjoyed strong growth in 2016 on the back of an economy that has so far remained relatively unscathed by political uncertainty at home and abroad. Given Spain’s economic turmoil in recent years, the optimistic results are a very welcome boost. Paul Golden takes a closer look

By Verdict Staff

The Spanish leasing sector has enjoyed strong growth in 2016 on the back of an economy that has so far remained relatively unscathed by political uncertainty at home and abroad. Given Spain’s economic turmoil in recent years, the optimistic results are a very welcome boost. Paul Golden takes a closer look

Speaking at the release of the October 2016 World Economic Outlook, IMF research department deputy director Gian Maria Milesi-Ferretti explained that the organisation had marked up its growth forecast for Spain this year, despite prolonged political uncertainty.

She highlighted the strength of the economy in the first half of the year and the unexpectedly benign external environment as factors that have outweighed the dangers that a protracted period of political uncertainty can bring.

But the IMF research department’s deputy director also noted that the Spanish economy continues to face considerable challenges.

“It will need to resume its fiscal adjustment in a gradual fashion, given that public debt is reaching 100% of GDP and the fiscal deficit has overshot targets, in part because of the fact that there is more political uncertainty and not a firmly established policy setting with the government to back it up.

“All those challenges loom high on the horizon, and for that reason the sooner the situation is stabilised, the better.”

Asociación Española de Leasing y Renting (AELR) data on new investment in leasing for the period January-June 2016 shows that volumes rose by almost 15% from just under €2.9bn to more than €3.3bn.

Of that figure, equipment and vehicles accounted for just over €2.9bn, with the remaining €410m coming from real estate – compared with €2.4bn and €488m for the previous 12 month period, indicating the continuing weakness in the property market.

The main segments of the lease market are transport (29%), industrial machinery (18%) and passenger cars (16%), all of which have recorded increased market shares since the end of 2015, at the expense of real estate.

Encouragingly, the bad debt ratio has shown a continued decline since 2014, and in the second quarter of 2016 was at 5.7% – its lowest level since 2012.

There have been other positive developments in Spain’s leasing industry this year. In April, the European Investment Bank (EIB) and BNP Paribas Leasing Solutions signed a partnership agreement on a pan-European €400m funding deal to finance entrepreneurial projects for SMEs and midcaps in five European countries, including Spain.

Each financed project will cover a maximum amount of €25m, and involved companies  will benefit from the EIB intervention by means of reduced interest rates on their credit or on their leasing.

Also in April, Spanish financial services company CaixaBank announced that it had created CaixaBank Equipment Finance, to enhance corporate financing at the point of sale. The new unit was launched with a portfolio of contracts worth €500m, and specialises in providing long-term financing of equipment and technology in sectors such as transport, logistics, food and agriculture, industrial machinery and healthcare.

AELR figures show that in the first eight months of 2016, the leasing of all types of vehicle rose by 16% to 139,730, compared to 120,379 for the same period of 2015. More than 119,500 passenger cars were leased in August – an increase of more than 20% – while truck leasing for the period January-August was up by 26.9%. The only negative was a decline of 4.7% in light commercial van leasing.

Despite the comments from the IMF and the positive vehicle lease data released in September, AELR president José Coronel de Palma gives a measured assessment of trading conditions for his members, and suggests that business investment has slowed over the last year as a result of political uncertainty.

However, he also refers to an increase of more than 11% in the capital goods sector (machinery and equipment), led by lifting material – where volumes more than doubled – and medical equipment, which increased by in excess of 91%.

The AELR president explains that the association developed a plan in 2015 to educate entrepreneurs, and small businesses in particular, on the merits of leasing, promoting the publication of relevant articles and collaborating with business schools so that entrepreneurs of the future have a greater and deeper knowledge of leasing.

After a long and a deep crisis in Spain SMEs need to renew their assets, and these companies are taking advantage of leasing solutions to refresh equipment and improve productivity and financial structures.

That is the view of Juan Martinez, head  of the high-technology division in Spain for SGEF, who says that the recovery of sectors such as machinery, construction, medical and technology is a key factor influencing the evolution and potential growth of the leasing market.

“The excess of liquidity is another important factor that it is affecting the Spanish leasing market, producing strong competition and a reduction in margins,” he says.

“After a long period with high cost of risk and consequently highly conservative risk policies, the Spanish economy shows signs of recovery. The reduction in unpaid ratios and higher availability of liquidity produce aggressive proposals in the market, and more and better opportunities for clients to obtain leasing solutions.”

Investment in transport equipment has experienced growth as a result of the general improvements in production, export and sales ratios, while the lease market for medical equipment has been impacted by the fiscal change in the purchase of medical equipment, which in the past benefitted from reduced VAT, explains Martinez.

While the Spanish government has not taken any direct action to support the lease finance industry in recent years, Martinez explains that some sectors have enjoyed what could be described as indirect assistance in the form of subsidies for the renewal of equipment.

“The tourism and automotive industries have been especially supported by the Spanish government; these actions have resulted in large investments in these sectors.”

However, Martinez observes that the rate of penetration of leasing among Spanish companies is very low in comparison with other European markets, suggesting there is considerable scope for growth.

“Approximately 30% of financial investments in Spain are realised through leasing solutions, and Spain is only the seventh-ranked country in Europe for lease investment.”

He says SGEF has taken a number of steps to encourage growth in leasing activity in Spain, including establishing a growth strategy to diversify the number of sectors and clients it works with, creating a business-development department and increasing global synergies within the group to offer clients a global integrated solution in more than 35 countries.

“We expect the market to grow this year, but the lack of government and now the minority administration could produce some delay in investment decisions for some companies, which could affect the level of growth,” Martinez acknowledges.

When asked to outline the key factors affecting the Spanish lease market, LeasePlan Spain managing director Alberto Sáez Sanz refers to changing consumer preferences and behaviour.

“Customers have real-time access to all the information they want, and we must not lose sight of the challenges posed by this new ‘digital’ client,” he says.

“Particularly in Spain, this situation is exacerbated by the fact that people are very much in a buying culture and, therefore, are relatively unaware of the advantages leasing could provide to their daily lives and mobility needs. It is a matter of education and lack of information that the industry is working hard to resolve.”

In March, LeasePlan launched its full-service mobility package, FlexiPlan, in Spain. The company said it had identified a gap between short-term rental offerings (1-30 days) and longer-term fixed leasing offerings (usually from 24 months onwards), and realised that many companies would prefer the option of a product that was flexible to their mobility needs.

“In our case, the political crisis has boosted the emergence of new mobility solutions, suitable not only for companies but also for private individuals, founded in practices such as carpooling or car sharing, and offering new ways of addressing daily mobility needs,” adds Sáez Sanz.

While accepting that the Spanish government has launched supporting programmes on behalf of the automotive sector which end up benefiting the lease industry, he observes that none of these programmes are specifically designed for the lease market and that such a development is badly needed.

“Direct actions towards encouraging car purchases are necessary for the lease market to be able to grow.

“Whether these financial aids are aimed at leasing companies directly or at our clients is not the issue here – if the company is the one receiving this assistance, it will end up benefitting the client through lower purchase prices or lower leasing fees.”

According to Sáez Sanz, the important thing is to be able to achieve and – above all – maintain the stability of the aid.

“The lease market needs stable measures to be implemented in our procedures and in our customer relationships. Quarterly aid programmes are temporary patches that do not bring stability to the business.”

LeasePlan’s strategy for staying ahead of the market in Spain includes creating a multidisciplinary working group focused on innovation, which has been responsible for developing and testing new products and services. If it can demonstrate that the new idea is useful for the customer, it will become part of the company’s portfolio.

“On the other hand, we have diversified our global leasing offer, reaching new markets including small businesses, self-employed and, recently, private individuals with unique offers,” says Sáez Sanz, who predicts market growth of around 9% in 2016.

“The political scenario in Spain and the lack of an official government has negatively affected the progress of the entire lease industry during recent months, as public clients have been using less fleet or for a shorter period of time than usual,” he adds.

“Nevertheless, we strongly expect the situation to recover in the latter part of this year.”

A spokesperson for DLL confirms that while the economic recovery continues to unfold, it will lose some pace.

“Exports continue to perform well, and domestic spending is reviving in line with less acute financial and fiscal tensions, lifting confidence while lower inflation stimulates household real income. However, consumers could remain cautious spenders due to reduced real incomes and housing equity, high unemployment and excessive debt.”

He goes on to observe that the economy is still struggling to create a sufficient number of jobs, hampering consumer confidence, and that firms are recruiting mainly on temporary contracts.

“Strong economic growth led to a substantial reduction of private debt – total private sector debt has fallen to 176% of GDP from 190% a year earlier. Still, private debt remains well above ratios that literature deems negative for growth [100% of GDP], although private debt is expected to decrease further this year.

“Despite increased domestic and thus import demand, the current account balance has improved, mainly as a result of lower import prices and debt service cost due to lower interest rates.”

When pressed to identify sectors of the lease market that will perform strongly in 2016, the DLL spokesperson refers to the IT sector and aircraft, boats and trains, which are expected to experience double-digit growth.

“Although there is a high unemployment rate, looking for the best talent available is getting harder,” he continues.

“Finding the best profile between a sizeable amount of candidates is time-consuming and not always easy. We also find some difficulties with experienced positions where we need someone with a deep knowledge of the sector.

“There are an excessive number of people seeking a job but is not always easy to fit the candidate to the open position in our company.”

DLL sees the direct approach – leveraging its link with Rabobank – as offering considerable potential in Spain, concludes its spokesperson. “We expect to outperform the market this year with double-digit growth.”<

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