Big ticket supports Spanish
new business

Spanish recovery likely to be
slow, but Brazil is providing a fillip. Antonio Fabrizio


Box showing top 10 leasing companies in Spain by new business 2010Leasing in Spain still feels heavily the effects of the
economic downturn. The latest figures from the Spanish Leasing
Association (AEL) show a modest recovery, but coming from a very
low point.

With €7.5bn in new business booked
last year – a 7.7% increase compared with 2009 – the Spanish
leasing market is still only one third of the size it was in 2007,
at the peak of the Spanish economic boom, when it hit the €21.5bn

Market commentators say that it
couldn’t have dropped any further, and that a modest increase was
largely expected.

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AEL president Tomas Perez
summarised this by saying the country’s leasing industry has
“definitely known better times”.

Pie chart showing new business by asset class in Spain, 2010AEL
figures show that the largest increase was in big ticket leasing.
Rail, ship and aircraft leasing increased their share from 8 to 18%
in the new business booked last year. This segment grew by 56% in
2010. Without large ticket operations, 2010 figures would have been

“Excluding big ticket, for typical
leasing transactions more or less we repeated the same performance
of 2009,” says Perez.

In mobile leasing, which includes
all assets except real estate, the increase was 8.7%. Vehicle
leasing grew by 15%, which was however offset by a 10% decrease in
machinery and equipment. Real estate grew by 4%.

Perez says: “There is a lot to
recover, and it will take time. In 2011 we will repeat last year’s
figure, too. At best, the maximum increase for 2011 could be

He points to the continuing drop in
car sales – with a decrease being recorded on a monthly basis – and
to the huge contraction of investments in industrial equipment as
the main reasons for the slow recovery.

“With the general conditions of the
economy, and the increase in oil prices due to North Africa’s
instability, the forecast is not very optimistic,” Perez says.


Economy under

Macroeconomic data show an economy
still under pressure on many fronts. The number of jobless in Spain
grew in February 2011 by 1.6% on the previous month to 4.3m. This
is 20% of Spain’s workforce, the highest figure since 1996.

GDP fell 0.1% in 2010 after falling
3.7% in 2009. The government predicts a 1.3% growth in 2011, but
the IMF forecast is a meagre 0.6%.

Instituto nacional de Estadistica
(Ine) figures show the number of company bankruptcies in 2010
dropped by 7%. Most companies were SMEs with a turnover below €2m,
and one in three bankrupt companies was in the construction sector.
This had repercussions on leasing of construction equipment.

Perez says: “Three years ago, we
were building about 800,000 new apartments. This year we won’t make
more than 150,000 new apartments. We are suffering a substantial
reduction of investments in that industry.”

Despite all this, Spanish leasing
has gained penetration as a favoured method of financing
investments. Total industry investments last year decreased by
around 10%, which meant that leasing penetration in overall
investments actually increased.

Leasing now accounts for 25 to 30%
of all investments. Additionally, despite the still high figure
recorded for bad debt, Perez says this remains below the bad debt
rate recorded for other forms of financing. In 2010 it fell by

Perez expects a stabilisation in
bad debt this year, although a recovery could take longer.

“SMEs are not having a good time,
and some of them have disappeared,” he says.

“We are all waiting for a recovery
that was expected to start in the second half of this year, but the
oil price increase has been a big blow to that expectation.”

Table showing seven-year view of business volumes in Spain 2004-2010)



Spanish banks dominate the leasing
market. More than 80% of new business last year was done by the top
nine leasing companies, all entities of Spanish banks.

Banco Santander ranked first with
€1.9bn, a 3% increase on 2009. The Spanish giant has a 25% market
share in leasing and continues to gain market share over its
closest competitors. Having seen sustained increases in new
business in the first three months of 2011, it aims to grow by
another 20% this year.

Santander claims its strict risk
policy has secured to the lender the lowest default rate among
Spain’s major leasing companies at 4.42%.

Santander was followed by Banco
Bilbao Vizcaya Argentaria (BBVA) which fell 1.2% to €1bn. It has a
13.7% market share.

Spain’s second-largest lender sees
leasing as one of its banking products for enterprises, and offers
it across all of its units and a network of around 3,000 branches.
It is a generalist leasing company, with real estate and IT/office
equipment accounting for 20% and 15% respectively. Vehicles,
medical equipment and general machinery account for another 12%

Third place went to Banco Popular,
which had a 2% increase to €953m, narrowing its gap with BBVA after
pushing its network to do more leasing.

Spanish banks largely use their
branches to sell leasing, with direct business being less

Miguel Vara, principal at Alta
Group in Madrid, explains: “Banks in Spain sell leasing as a
commodity, using their network and offering leasing as they would
offer any type of financial product.

“In that sense, they are more
efficient and their network is enormous, because they can sell
leasing even in remote regions.”

Like BBVA, Santander has almost
3,000 branches across Spain where its customers can request and
manage a leasing operation.

Santander head of leasing Rafael
Ortuño Vilar-Sancho says: “Our strategy since the beginning of our
activity has been to turn into a banking product [‘bancarizar’] all
of our products.”

Vilar-Sancho says that the nature
of leasing as a form of financing investments has made it
particularly attractive for customers.

“Leasing has become a priority
within Santander’s strategy,” he adds.

“Each of our employees in our bank
branches knows this product well and can show its advantages and
characteristics to our clients. Additionally, almost 100% of the
contracts can be emitted by our branches without any extra help
from our central offices.”

While leasing of equipment is
managed by the local branch, the part which involves big-ticket
deals is sometimes done centrally. Each Spanish bank has its
specialist team that operate for corporate customers or large

The likes BBVA, Caja Madrid and
Santander all have units that specialise in corporate customers and
vendor finance – but vendor business is marginal compared with
customer-originated business (see p24-25).

For instance, Santander is in the
process of signing a €32m deal for providing one of Spain’s largest
construction companies with a tunnel boring machine. In January, it
signed an agreement with diary and food company Leche Pascual to
finance one of Europe’s largest fleets of hybrid vehicles –
including 500 Toyota Auris cars and 30 Toyota Prius.

Photo showing Santander signing an agreement with dairy and food company Leche Pascual to finance one of Europe’s largest fleets of hybrid vehicles in January 2011



Spain’s cajas, or savings banks,
have come under pressure recently. A wave of consolidation seen in
the past months has resulted in a reduction from 45 to the current
17 cajas, and the process is continuing.

The Spanish government recently
estimated a funding gap of €20bn for the cajas, caused by reckless
lending – particularly with their mortgage activity – during the
years of the property boom, but rating agencies have said that this
might not be enough to restore their financial stability.

Moody’s raised its estimate for the
funding shortfall from €17bn in December to €50bn last month, most
of which would concentrate in the savings banks.

Moody’s senior analyst Alberto
Postillo says that, in order to regain markets confidence, a “full
clean-up of losses embedded in banks’ balance sheets” would be

With new core capital ratios
approved by the Spanish government in early February, some savings
banks have said that they would seek to sell parts of their

Whether it is leasing, it remains
to be seen, but, Postillo says: “Should there be a move among
Spanish savings banks to sell leasing arms, this will not lead to
significant deleveraging as this type of lending does not have a
material weight in banks’ balance sheets.”

Perez is confident that cajas-owned
leasing companies will not suffer as a consequence of the

“Savings banks are merging with
different formulas,” he says.

“When they have specialised leasing
subsidiaries, there could be a merger of these subsidiaries, but
not necessarily. For the rest it shouldn’t change very much.”

The lack of demand remains Spanish
lessors’ main challenge, but leasing association AEL hopes that as
industrial production increases – it has been growing, albeit
slightly, for the past two quarters – it could benefit leasing,

Latin America represents another

“South America remains a big market
for leasing, and a lot of the business there is done by Spanish
banks like BBVA and Santander,” says Vara.

This is particularly true in Brazil
– where a lot of work is ongoing due to the 2014 FIFA World Cup
and, in 2016, the next Olympic Games.

As Santander is Brazil’s
fourth-largest lender, a lot of business could be channelled
through to its local leasing subsidiary, too.

Mike Janse, De Lage Landen manager
for Spain and Portugal, adds: “We have seen
an extremely strong movement towards Latin America.

“Rental companies that survived
have shifted their business to Brazil and Mexico and, to a lesser
extent, Chile and Peru. They are closer than Eastern Europe and
Asia, for cultural and language reasons.”

South America could, therefore, be a safety valve until
conditions improve. For the rest, it will take time, and market
commentators agree that the recovery will be much slower than the
dramatic fall.


See also: Global links
dominate Spain’s vendor market

See also: Portugal
under shadow of sovereign debt crisis