With Aldermore celebrating its fifth anniversary, Carl D’Ammassa reflects on the company’s first five years in asset finance and looks toward a positive future
Five years ago the asset finance industry was raising itself from perhaps the biggest shift we will see in our lifetimes. Almost overnight commercial finance had effectively dried up and many lenders had contracted their appetite for asset finance or worse pulled out of the market completely. Pre-financial crisis the UK asset finance industry stood at roughly £30bn, but post-08 the market contracted to a fraction of that size with the supply of finance diminishing by a third. It was at this time, in this challenging environment, that Aldermore was formed and set about creating its commercial lending businesses.
This week Aldermore celebrates its fifth birthday, which has caused me to reflect on the changes that have occurred within the industry since our birth. For the majority of the past half a decade our industry has been gripped by an overwhelming sense of caution. It’s true to say that as a successor to the financial crisis our business hasn’t undergone the seismic shifts that other older more established firms have had to manage. Maybe that is how we have been able to grow in an asset finance market that has broadly remained flat. Like other lenders we’ve learnt from the effects of 2008; in fact we’ve developed and built our business in direct response to those lessons, ensuring we can operate effectively within this new challenging economic and regulatory environment.
As economic confidence has been improving, it is quite understandable, that the majority of lenders have been focused on borrowers with impeccable credit profiles and have been happy to provide asset finance where they have a strong security position. This no-brainer lending has inevitably meant some SMEs have struggled to get finance. As an asset finance industry our portfolio qualities have never been so good. It feels like we are working in a low arrears and effectively zero credit loss environment. Of course, that is not sustainable and while we are seeing both the supply of and demand for asset finance increase, I hope that the scars formed since 2008 will ensure our industry maintains a sensible element of caution as we begin to grow our market again.
As I speak to customers and our introducers I feel the growing confidence from small and medium sized companies. They have ambitions and a strong desire to invest for future growth. It’s great to read the Finance and Leasing Association’s monthly updates that indicate double digit growth in a number of sectors. At Aldermore we are feeling this demand and like a number of established players in our market we are stepping up to support these financing needs. While we are in the early stages of positive change, I feel optimistic that this growth will continue. The Office of Budgetary Responsibility continues to forecast strong growth in business investment which is intrinsically linked to asset financing. With a more balanced view of risk, and given the current environment, I could quite easily see the asset finance industry return to its pre-crisis high of £30bn within the next five years.
Of course, it’s important to acknowledge the ever increasing vigilance of our industry’s reformed regulation. Under the FCA I expect to see a more challenging environment for funders and their introducers, one in which our products, processes, rates, and distribution practices will be heavily scrutinised. The FCA’s intent is clearly appropriate given some of the sharp practices we see elsewhere in financial services. As a result I suspect when Aldermore comes to celebrate its tenth birthday I will be looking at a considerably more robustly regulated asset finance industry. It’s important that the industry works closely with our regulator to shape this future.
I feel positive about the next five years and I have no doubt that our industry will grow in a sensible way, supporting UK businesses and continuing to support Britain’s economic recovery.
Carl D’Ammassa is managing director of asset finance at Aldermore Bank