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June 11, 2019updated 06 Jun 2019 12:41pm

Scandinavia: a question of perspective

By Paul Golden

Data from the respective leasing associations suggests a disparity in the sector’s performance across Scandinavia, with consistent growth in lease activity in Denmark and Norway tempered by a decline in business in Sweden. Paul Golden reports.

The most recent available data from Finansbolagens Förening, the Association of Swedish Finance Houses, indicates that the outstanding amount or book value of leasing business at the end of 2017 was down from SEK122bn (€11.2bn) in 2016 to SEK111bn.

Finansbolagens Förening did not respond to Leasing Life’s request for interview or more up-to-date market statistics; its counterparts in Denmark and Norway, however, were able to shed some light on developments within those markets. According to Danish leasing association Finans og Leasing, lease volumes in that country rose by just over 3% in 2018.

“The Danish leasing market is currently in a good place, with between 40% and 50% of all new cars being leased,” says the association’s CEO, Christian Brandt.

“The overall market has experienced growth of more than 100% since 2012. If we look at specific sectors, industrial equipment lease turnover is up by 76% between 2015 and 2018, while leasing of lorries under 3,500kg rose by 31% over that period and commercial machines and cranes increased by 29%.”

He says the main reason for the rise in these sectors is the high level of activity in the construction industry.

“We saw some fluctuations in the leasing market during 2017 because of a lengthy debate in Denmark about a reduction in government tax on new cars,” adds Brandt.

“This debate led to a decrease in the sales of new cars, which subsequently led to a decrease in the number of cars being leased. The market then rectified itself as car sales increased again.”

He describes leasing as being in a strong position, especially in the business cars, vans and trucks markets, although it is unclear whether the lease market in Denmark will grow this year.

“It is very hard to predict what will happen,” says Brandt. “However, car sales last year were high, which led to a good year in leasing, and if new legislation isn’t imposed we are optimistic about the future.”

Influence and Initiative

The Danish leasing association influences decision-makers with regards to the leasing agenda through dialogue with legislators, authorities and other interest groups about leasing and educating as many people outside the sector as possible about its agenda.

“We try to work on the sector’s image and consumer confidence in order to further leasing within a private context,” adds Brandt. “We have also made an e-learning course in financial leasing available. The course is primarily designed for people who haven’t worked with leasing before, but can also be used as an upgrade of existing competencies.”

One of its most successful initiatives began in 2010 when Finans og Leasing and the Danish Motor Owners’ Association collaborated on developing a standardised contract for private leasing that consumers could use when entering an agreement. This contract guaranteed a fixed price for consumers, even in the event of higher prices as a result of new legislation.

Christina Åhlander, managing director of Finansieringsselskapenes Forening, the Association of Norwegian Finance Houses, observes that relatively few of the association’s members are engaged exclusively in leasing, and are also active in other fields of financing such as factoring, car financing, instalment credits, credit cards or personal loans.

“The Association of Norwegian Finance Houses is a trade body for financing companies operating in Norway, and currently has 43 member companies, of which 25 are engaged in leasing,” she explains. “The association’s membership accounts for more than 90% of the lease market.”

Member companies’ earnings in 2018 were strong on the back of growth in the Norwegian economy, where non-oil GDP growth climbed to 2.2%. Lease financing of new equipment and cars rose by 5% to NOK64.7bn (€6.57bn) last year, and member companies lease-financed around 30% of business investment in commercial vehicles, machinery and equipment, commanding a strong position as a source of finance for the business sector.

“Our member companies’ leasing portfolio grew by 11.9% in 2018 after an increase of 11.8% in 2017 and amounted to NOK149bn at the end of last year,” Åhlander continues. “Industrial equipment and machinery made up approximately 30% of the portfolio, with similar shares for heavy goods vehicles and cars. Manufacturing and services are the sectors that make the greatest use of leasing to finance assets.”

New car sales in Norway dropped by 6.8% last year compared to the previous 12-month period, but member companies increased their market share from 63% to 67%. Rapid technological advances and uncertainty about fuel types have prompted a substantial increase in private leasing, with the overall automotive lease market recording a modest gain in 2018 to reach NOK21.6bn. Private leasing amounted to 62.4% of the total market.

“Member companies’ fleet solutions covered almost 78,000 cars at the end of last year,” adds Åhlander, who says the Norwegian car market is changing. “According to the Norwegian Road Federation, electric cars had a market share of 31.2% in 2018, compared with 20.8% in 2017,” he notes.

“The number of hybrids had a small reduction in 2018 and had a market share of 29% compared to 31.2% in 2017. Meanwhile, diesel cars’ share of the market fell sharply from 40.9% in 2015 and 35.5% in 2016 to 17.7% last year.”

Increased Coverage

Earlier this year, LD Automotive and Nordea Finance announced plans to increase collaboration under the NF Fleet brand in Denmark, Norway and Sweden, to develop and expand NF Fleet’s commercial coverage of Nordea Finance’s SME customer base.

ALD Automotive said that with the car finance market changing rapidly over the last few years, smaller companies and private individuals in particular are increasingly looking for outsourcing solutions for vehicle leasing. Mobility services and solutions such as car sharing will be integrated into the overall offering over time.

Looking ahead, the managing director of the Association of Norwegian Finance Houses says the economic upswing is expected to continue in 2019, fuelled by increased oil investment and higher global growth, but moderated by dwindling housing investment and higher interest rates.

Business investment in the mainland economy is set to rise, with Statistics Norway projecting growth of around 5% in 2019. Growth in household consumption is also expected to accelerate, boosted by rising real income growth. Although the weak housing market will put a dampener on consumption, Statistics Norway still expects an annual increase of 2.4%, or even slightly more, going forward.

“Member companies are cautiously optimistic about the future,” says Åhlander. “In terms of credit volume, more than half of our member firm now have foreign owners, and it will be important for the authorities to bear Europe in mind when designing future regulatory solutions so that there continue to be opportunities to offer customers competitive solutions.”

She refers to a tendency for Norwegian authorities to introduce tougher rules than elsewhere in Scandinavia and Europe, leading to unfavourable distortion of competition.

“The association has an important role to play in shaping developments in this area,” she continues. “Member companies have many good years behind them, and have proved adept at financing profitably a substantial share of investments by both firms and consumers. The market outlook for 2019 is bright, albeit with a degree of uncertainty.”

Last October, G Finans, the Norwegian unit of SGEF, received NOK1.73bn from the European Investment Bank to support green investment by SMEs in the country. More than two-thirds of the wholesale funding line was earmarked for investment in climate-friendly transport.

Norway, a global leader in green investment, has attracted the interest of lessors both for its business potential and as a hub to spearhead investment in the Scandinavian region. SGEF rival BNP Paribas Leasing Solutions has previously signalled its intention to use the acquisition of Norwegian lessor Landkreditt Finans to coordinate expansion in the Nordic market.

High Competition

Asked to describe the current health of the leasing market in Denmark, Sweden and Denmark, an SGEF spokesperson suggests that Sweden and Denmark are experiencing a highly competitive market situation. “The Swedish leasing market did not grow in 2018, and last year’s drought resulted in a decrease of 25% in tractor sales in Denmark,” she says.

High levels of liquidity are also having an effect, and combined with low interest rates, this has resulted in pressure on margins. “It is our impression that growth in investments is stagnating, which increases the competition even more,” the spokesperson adds. “In Sweden we expect the market to be similar to 2018, maybe even with a small decline.”

The Norwegian leasing market is indicating continued growth in the first quarter of 2019, driven by large bus and transport contracts, and investments in construction-related equipment and vehicles as a result of infrastructure projects.

“We see no signs of this growth flattening,” says the SGEF spokesperson. “In Denmark, the transportation and industry sector increased last year, but agriculture and IT declined. In 2019 we might expect moderate growth in agriculture and construction, but it is difficult to say whether the market will definitely grow this year, and we perceive a situation where the market may be stagnant.”

SGEF Scandinavia says it is working closely with its network of equipment vendors and dealers as distribution partners in order to increase its focus on sales financing as a sales tool. This includes product development and the introduction of digital finance solutions which are user-friendly and seamless. According to the company spokesperson, the launch of a range of financial services as integrated services via APIs is expected to have a positive effect.

“Additionally, SGEF Scandinavia is constantly promoting leasing as an effective financial instrument for equipment investment through continuous marketing efforts,” she says. Despite the relatively downbeat assessment of the overall market prospects in Sweden this year, and uncertainties in the world economy around Brexit and potential trade wars that could influence the Swedish market negatively, SGEF Sweden expects to increase its market share in 2019.

“In Denmark, the leasing market will reflect the overall investment rate. Given that we do not expect an investment boost, we have moderate expectations in regard to growth in the Danish leasing market,” she continues.

“On the other hand, we detect an increase of leasing’s share of investments, which could result in small growth in the leasing market. We are more optimistic in regard to the Norwegian leasing market, given the extent of governmental infrastructure projects as well as large investments in buses for public transportation.”

Coen Aarnink, vice-president of sales leasing (Nordics & Benelux) at Grenke, says the Danish, Swedish and Norwegian leasing markets could all be described as highly competitive, with very high levels of leasing penetration.

“We also see that these markets are frontrunners in adapting and embracing new technologies, which is why we – along with many other finance companies – are very eager to be successful in these mature markets,” she says, adding that the company’s growth in Scandinavia has been based on three factors.

“Firstly, we have opened a new branch in Køge, and soon we will be opening our branch in Gothenburg, which means we can enhance our sales strength on a local level and are close to our clients. Secondly, we have strongly increased our sales capacity in the direct channel in order to be closer to the market. Thirdly, we have increased our product portfolio with new contract types.”

Aarnink expresses satisfaction with Grenke’s overall market growth in Scandinavia, noting that in these combined markets it has experienced growth of more than 35% over the last year.

Asked whether she expects the lease markets in Denmark, Norway and Sweden to grow this year, Aarnink says market shares in these markets still have sufficient room to develop upwards. “Our outlook for this year is that we can maintain this growth, regardless of the development of the market,” she concludes.

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