Of all the challenges facing the French leasing industry, legal reforms have emerged as being among the most critical.
Top of the list perhaps is CRD IV, or the fourth iteration of the European Commissions proposed Credit Requirement Directive.
In a speech to the French leasing association (ASF) in June, the governor of the Bank of France, Christian Noyer, told members that the proposed standards may not be suitable for all financial institutions, including lessors.
The future liquidity standards are clearly not suitable for all institutions, including those who do not have significant activity in collecting deposits, Noyer said. The solution for maintaining the rules in force in France needs to be explored, provided that this does not affect competition.
Under the CRD IV proposals, banks will be required to hold more and better capital to protect against future shocks. The proposals entered the last stage of negotiations in Europe this summer and are expected to be finalised after officials return from their August holiday.
It seems desirable, in accordance with European law, to introduce in France a statute for companies wishing to specialise in certain types of business credit without having to collect deposits or to comply with new liquidity rules, Noyer said.
These elements should be balanced, proportionate and adapted to the different issues faced by financial companies. Differentiated regimes therefore appear useful.
Frédéric Laurent, director of operations in France at CHP Consulting, added that lessors in France could suffer a major setback as a result of the legislation, compared to competitors who are able to take deposits.
The liquidity requirements of CRD IV are aimed at deposit takers, which is not something a number of French lessors do, he said.
This puts them at a significant disadvantage compared to deposit-taking French competitors and also European competitors who operate in countries where a non-deposit-taking status exists, Laurent added.
Aside from CRD IV, the Common Agricultural Policy (CAP), also implemented by the European Commission, has been under some scrutiny during 2012, as it is due to be reformed next year.
The proposed policy reforms include, among other things, plans to ensure food security, to improve competitiveness among farmers, and to contribute to farm incomes, which could open the door for specially designed financing programmes from lessors.
The implementation of the new CAP is expected to revitalise the investments of the agricultural market [in France], a spokesperson at Crédit Agricole Leasing & Factoring (CALEF), said.
In France specifically, as part of a bid to support the banking and financing sector, the government also prolonged tax incentives linked to sale and leaseback agreements in real estate leasing until the end of 2012, thereby supporting companies in need of cash, the spokesperson added.
Despite the potential threat posed by the implementation of the new CRD legislation, the French government has let it be known that it plans to support the national economy. In recent years, the authorities have taken a number of steps to bolster both the banking industry and businesses in general, according to Laurent.
This includes the creation of a sovereign investment fund in 2008, known as the Fonds Stratégique dInvestissement, or the FSI, whose aim was to invest French national funds into new industrial projects.
They also implemented higher tax depreciation rates for industrial companies, announced in 2008, Laurent said. There are a number of tax credits around employer taxes for small and medium enterprises and they doubled the funds available to the FSI in 2009, he added.
Fast forward to 2011, and companies like CALEF, with the support of parent company and French banking heavyweight Crédit Agricole, have managed to weather the economic storm relatively well.
The debt crisis has had the effect on the leasing market in France of a marked drop in activity in 2009. The market has not recovered to pre-crisis levels since, Laurent said. [However], established bank-backed players have both the appetite to stay in this market in spite of recent difficulties, and the know-how to cope with the flow of new regulations.
For example, said CALEFs spokesperson, CALEFs share of the French market in 2011 was about 16.7% in pure value terms, with a production output of 4.1bn. This figure excludes car leasing, however, as CALEF is no longer directly active in that market.
The size of the French market in 2011 reached 24.6bn, excluding car leasing which accounted for 4.5bn, said the spokesperson.
Also in 2011, CALEF achieved a second year of record production in real estate leasing in France, positioning it as the second highest ranking company in the country, with 1bn of business.
CALEF was also successful in the financing of industrial equipment and building and civil engineering works, taking advantage of the increase in these markets, said CALEFs spokesperson. We would also like to highlight CALEFs good results in the IT sector, in which our market share increased by five points to reach 20%.
Beyond the French borders, the value of the companys leasing production reached 1.4bn. CALEF subsidiary EFL, as the number one Polish leasing player, and Crédit Agricole Leasing Italy accounted for most of it, said CALEFs spokesperson.
In France overall, funding of companies equipment via financial and operating leases increased by 13% year-on-year in 2011. The road transport sector showed the best performance with an increase of 20.5% compared to 2010, at 5.4bn, CALEFs spokesperson told Leasing Life. This can be explained by the dynamics of the sales in the transport sector in 2011, sustained by public authorities, with registrations increasing by 31.7% for trucks weighing less than 3.5 tonnes, and remaining stable at 47.7% for tractors.
The industry in France continues to operate without a major network of brokers, and the vast majority of business is done through parent companies or other partners.
CALEFs spokesperson said: Several channels distribute leasing to clients: banking networks, other partners such as manufacturers, wholesalers, retailers, dealers, or rental companies and direct sales. There are very few intermediaries, like brokers and agents,
CALEF works with the banks of the group a total of 39 regional banks and Le Crédit Lyonnais, but also through large national partnerships with truck or office automation manufacturers for instance, or through a direct approach.
The success of the leasing market, the spokesperson added, is heavily reliant on the level of corporate investment in France.
After the deterioration of the market three years ago, the commercial output of the member companies of the ASF is still down by about 2.5bn, compared with the record year of production in 2008.
On the other hand, some markets like construction or the procurement contracts in public and private partnerships are expected to be strong, said CALEFs spokesperson. Even if its size is still modest today, the biomass market also represents a development potential for CALEF.
This includes the leasing of equipment such as wood chippers and industrial grinding machinery for the production of renewable energy.
Beyond this, CALEF plans to keep its focus on keeping its customers satisfied, and the reinforcement of its position in specific sectors, such as agriculture its traditional area of expertise as well as in medical equipment and biomass.
The prospects for the industry and for the French economy are clouded at best, however, its spokesperson conceded: The outlook is uncertain in the automobile sector, both for individual and industrial vehicles, which will also have an impact on equipment manufacturers.
Only some sectors are expected to develop, like the mechanical engineering industry and, to a lesser extent, the food-processing industry.
This will be supported by French companies looking to invest in automation in a bid to increase capital efficiency.
The market as a whole for equipment finance to businesses peaked at a total output of about 27bn in 2008, and is now stands at about 24.5bn, Laurent said.
The drop in equipment financing during the recession was more significant than the drop in GDP, he added and, as such, there could be room for expansion.
There is definitely growth potential in the French market. French leasing companies should stick to the basics and focus on financing viable businesses, he said.
However, they should not slow down the flow of credits to these viable businesses if they want to avoid choking the economy.
In other words, according to Laurent, risk appetite remains relatively subdued, and lessors in France will be less likely to offer financing to those companies with a less than spotless record, at least for the time being.
The ASF estimates that its members represent 16% of the credit provided to businesses, so any changes in the leasing market will have an impact on the economy, Laurent said.
He was, however, somewhat less bleak than CALEFs spokesperson in his predictions for the rest of 2012, and for the coming year.
In the face of a possible recession in the wider economy in 2012, the outlook is for stabilisation in 2012 and hopefully growth from 2013, Laurent said.
The uncertainty surrounding the effects of the euro crisis makes this extremely difficult to predict. It all depends on how quickly leasing companies can be convinced that these issues will be dealt with in the future, he added.
The role and structure of the ASF
The Association Française des Sociétés Financières (ASF) is a founding member of AFECEI the French Association of Credit Institutions and Investment Firms and is the professional body for financial companies in France.
More specifically, the body represents companies in specialised financial services, including leasing, real estate, and factoring.
As such, it works with credit authorities, governments, European institutions, consumer organisations and trade unions in the management of a collective agreement.
The ASF is responsible for administering, in consultation with the trade unions, the collective agreement specific to specialised financial institutions.
Following a joint consultation in 2010, the ASF entered into two agreements during that year between the association and its social partners.
An agreement on 1 June 2010 specified there should be equality between men and women within the association and, on 17 December, it was agreed that special leave would be granted for personal reasons.
Other topics discussed by the joint bodies in 2010 included minimum guaranteed pay for those working in the French leasing industry, as well as the development of job classification under the collective agreement.
The ASF supports its members with regard to the continuous moves towards diversification in the French banking sector, as well as the ever-growing complexity of banking techniques.
Members of the association include independent companies, subsidiaries of large groups, specialist financial companies, specialised banks, and investment firms.
They all fall under the banner of specialised finance, focusing on a small number
of activities where their specific know-how is recognised.
The associations commission on equipment financing for business includes
president Philippe Chédane, director of operations at CM-CIC Bail, and vice-presidents Pierre Besnard, director general of Natixis Lease, Thierry Galharret, head of BNP Paribas Lease Group, and Huguette Ranc, president and director general of IBM Finance France.
Factoring in France in the first half of 2012
After growth in the French factoring industry of 9.5% in the first quarter of 2012 compared with the same period in the previous year, the increase in factoring operations dwindled in spring with a rise of 6.8%.
In total, for the six months ending 30 June 2012, the amount of debt supported under a factoring contract stood at 91.6bn, up 8.1% compared to the first six months of 2011, according to the ASF.
Even though such growth is far from negligible, the association said, and especially in the current economic climate, this increase nonetheless represents a slowdown in activity.
The growth rate in the French factoring industry halved in the space of a year, the ASF said, down from 16.9% in the first half of 2011.
It has fallen below 10% for the first time since the renewed economic contraction in 2010 that followed the global financial crisis in 2009.
In an atypical development compared to changes recently, transactions solely on a national level rose more markedly in the first half of 2012, up 8.9% compared to the same period of the previous year with 75.1bn.
On an international level in other words, based on activity linked to export the sector grew just 1.2% year-on-year to 14.4bn.
Lease financing for businesses in the first quarter of 2012
Lease financing of capital investment provided to companies and professionals had, from the autumn of 2010 to the autumn of 2011, recorded five consecutive quarters of annual growth in double digits, growing an average of 12% year-on-year.
During the first quarter of 2012, however, there was a dramatic slowdown in the supply of this kind of financing in France.
The increase, compared to the first three months of 2011, slipped to just 1.1%, standing at total output of 5.3bn.
Operations with the option to buy, meanwhile, were more or less unchanged year-on-year in the first quarter. Output rose just 0.2% compared to the first quarter of 2011, with 3bn total output for the period.
Output from operations lease without an option to buy rose 2.3%, to nearly 2.4bn, while a small amount of equipment financing continued to be carried out in the form of traditional equipment loans.
With output of 500m in the first quarter of 2012, these operations contracted by 11.7% compared to first three months of 2011.
Interview: Bertrand Gousset, BNP Paribas Lease Solutions France
Leasing Life talks to Bertrand Gousset, head of the Bank Leasing Services international business line within BNP Paribas Leasing Solutions and supervisor for the French entity of BNP Paribas Leasing Solutions.
Leasing Life: What proportion of the market does the company represent? Which market sectors have been most successful for the company this year?
Bertrand Gousset: BNP Paribas Leasing Solutions is a leader of the non-real estate French leasing market. The farming market has been the best performing since the beginning of the year thanks to a product range increasingly better suited to our clients. The other markets remain stable, or slightly lower than 2011.
LL: How are independent and captive lessors performing this year?
BG: In a market which is likely to be lower than in 2011, some lessors are performing well, others are declining for strategic reasons, often linked to the new regulatory context.
LL: The company has been very successful in 2011, ranking top of Leaseuropes list of the best lessors in Europe what has supported this success?
BG: For the third consecutive year, BNP Paribas Leasing Solutions, together with Arval, ranks first in the Leaseurope ranking. In a very difficult economic context, BNP Paribas Leasing Solutions continues working with hundreds of thousands of companies that need financing solutions, advice and long-term support.
LL: What effect has the debt crisis had on the leasing market in France and on your company?
BG: Investments remained sustained during this semester, but a slowdown has been noted at the beginning of this summer. Nevertheless, our business performance is very satisfactory and in generally in line with our objectives.
LL: How does your company reach its customers?
BG: Our distribution strategy relies on three channels: First is the vendor approach (partners, distribution channels). Secondly is the banking approach (for the clients of BNP Paribas) and thirdly is the direct approach offering strong value-added products (rental solutions with services).
LL: What potential is there for growth in the French market, given its maturity and size?
BG: The French leasing market is already very mature, thus we do not anticipate any significant growth over the short term.
LL: What new opportunities and/or challenges have emerged during 2012 that were not present in the French leasing market previously?
BG: BNP Paribas Leasing Solutions recently conducted a survey dedicated to the major evolutions that recently took place in the technology markets in France. We observed that a growing number of companies were interested by new solutions in terms of fleet management. The total cost of ownership approach leading to equipment outsourcing and financing solutions combined with additional services are considered more and more when it is about acquiring or renewing a fleet of equipment. This brings new opportunities to BNP Paribas Leasing Solutions, which is well positioned in this segment.
LL: What strategies has the company put in place to make sure it continues to achieve success in such difficult economic conditions?
BG: We count on several core assets to remain among the leaders in financing real economy, despite the new regulatory constraints (Basel III) and a challenging economic environment: a strong proximity with our partners and customers, constant enhancement of the service quality that we provide them and a range of products in line with their needs are the keys to success.
LL: What is the outlook for the industry in France and for the company for the rest of 2012 and into 2013?
BG: We do not foresee any downturn. Business should remain pretty stable year-on-year.
Bertrand Gousset is head of the Bank Leasing Services international business line within BNP Paribas Leasing Solutions and supervisor for the French entity of BNP Paribas Leasing Solutions.