The leasing industry
could be severely impacted by proposals to reform the UK banking
system. Nick Huber and Ronan McCaughey report.
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Experts have
warned that proposals to reform the UK banking industry could
result in major financial institutions restructuring their leasing
divisions and raising charges for asset finance.
In its eagerly-awaited
interim report, published on 11 April, the Independent Commission
on Banking (ICB) recommended that systemically important banks
should hold equity of at least 10% together with genuinely
loss-absorbent debt in order to strike a better balance between
increasing the cost of lending and reducing the frequency and/or
impact of financial crises.
It was also recommended that
banks’ retail arms should be ring-fenced from investment banking
divisions to make financial institutions safer and more
robust.
The proposed shake-up would
increase costs for banks and encourage them to look for savings
outside their core business – such as leasing, according to some
consultants.
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By GlobalDataDerek Soper, chairman of
IAA-Advisory, an asset finance and commercial banking consultancy,
said banks may bring their leasing subsidiaries back into their
retail branches as part of a cost-saving drive.
Soper said: “I think banks
will deliver leasing via corporate banking services in their
branches. Running separate leasing subsidiaries is an expense.
Banks want efficiency and to save costs.”
Colin Tourick, chief
executive of asset finance consultancy Aisby & Company, said
retail banks may increase their leasing charges to business
customers to help offset the expense of higher capital requirements
recommended by the ICB.
“As a leasing industry
specialist we should be concerned by anything that increases the
cost lessors need to incur when doing business,” Tourick
said.
“It does seem these costs
will rise, whether the lessor in question is part of a bank or is
using funds provided by the banking sector.”
Francesco Burelli, principal
in financial services at Value Partners UK, said any change which
increases funding requirements or drives up costs is likely to
result in an increase in charges for asset finance, among other
products and services.
Burelli explained that, given
the progress reached in the ICB review, leasing companies –
alongside other banking units – should consider engaging in
scenario evaluation and impact assessment across a number of
different areas including positioning, client strategy, compliance
and capital requirements.
“Establishing a
note-comparison dialogue with other players is something to be
considered carefully,” said Burelli.
“There is a risk that
multiple or diverging comments and responses will simply detract
from the credibility and the sustainability of the arguments that
the industry is able to provide regulators.”
Matt Haw, a partner in the
restructuring and recovery team at accounting firm Baker Tilly,
agreed that the charges for asset finance could rise as a result of
the interim ICB report.
Haw said: “Will banks want to
change ‘free’ banking or are they going to find other ways of
getting their revenue back in more specialist areas of finance?
Leasing finance is an easier target, I would suggest.”
He also warned any drive by
retail banks to subsume leasing subsidiaries into operations could
result in a significant loss of the “specialist knowledge and
specialist service that comes with the standalone
subsidiaries”.
Commenting on the possible
impact of the ICB report on leasing, Julian Rose, head of asset
finance, at the Finance and Leasing Association, said: “Tighter
regulation of the banking system, as suggested in this interim
report, should make lower-risk and more cost-efficient ways of
lending to businesses such as asset finance more important than
ever.”
HSBC, Santander and Barclays declined to comment on the
impact of the ICB report.
