Basel III rules on the amount of capital banks must hold to withstand shocks may give independent leasing companies an opportunity to win new business if banks scale back their leasing businesses, a leasing expert has said.
George Tonks, partner at Invigors, an asset finance consultancy, said that banks may decide to reduce lending in their asset finance arms and prioritise more high-profile lending such as unsecured bank loans when preparing for the capital requirements of Basel III, which is due to introduced by the end of 2012.
If banks scale back their asset finance businesses, cash-rich manufacturers and conglomerates such as Siemens and General Electric, who have leasing arms, could have an opportunity to fill gaps in the market and increase their market share.
“If you are independent leasing company, for example in a manufacturing group, and have access to finance other than bank loans, then Basel III is potentially good news,” Tonks said.
Leasing Life contacted a number of the big banks and leasing providers for comment about Basel III. All declined to comment, or did not respond to requests for comment.
It is still unclear what impact Basel III will have on different parts of the asset finance industry.
Tonks said that although leasing typically produces a higher return on equity than more risky unsecured bank loans, asset finance “is not particularly well understood at a senior level at some banks.”
This could mean that asset finance businesses become targets for cuts if banks need to ration some areas of lending in order to build a capital cushion for Basel III, Tonks said.
Julian Rose, head of asset finance at the Finance and Leasing Association, said that tighter regulation of the banking system, such as capital requirements, should make “lower risk and more cost efficient” business lending “more important than ever.”
In addition to stricter capital rules, Basel III proposals will introduce new standards for liquidity and require banking groups to build up more stable long-term funding.