The ebbs and flows of the individual markets within the Nordic region continue unabated, with the overall effect being flat growth across Denmark, Finland, Norway and Sweden. Paul Golden reports.


Data on the Nordic leasing market from the 2013 Leaseurope annual survey shows that the region recorded negligible growth between 2012 and last year, with new business volume falling slightly from €26.48bn to €26.44bn. There was little change in outstanding volumes across the region either, with an increase of just 1%.

However, there were some disparities from country to country. For example, while new business in Denmark rose from €5.4bn in 2012 to €5.8bn last year, the corresponding figures for Finland showed a fall from €3.6bn to €3.4bn. Sweden and Norway were largely unchanged.

Finland showed the greatest increase in outstanding volumes from 2012 to 2013 (up by 1.3% to €8.5bn) while Norwegian outstandings were almost completely unchanged.

"Our member’s leasing business is at a healthy level and there are no signs of increased risk taking or credit losses in the market," says Reima Letto, director of the Federation of Finnish Financial Services.

"Leasing seems to increase its penetration continuously in investment finance. However, in the near future the changes proposed to lease accounting by IASB will make accounting more complicated and change the business operations of finance houses. The proposed changes would also increase finance houses’ capital requirements, perhaps negatively affecting costs of lease financing."

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Data from Federation of Finnish Financial Services members suggests that the Finnish leasing market has recovered from two years of falling levels of new business. IT and office equipment accounts for 27.5% of market value, with passenger vehicles accounting for just over 21%. Machinery and industrial equipment and road transport vehicles represent 13.6% and 12.9% respectively.

According to Letto, new leasing business has increased by approximately 9% over the past 12 months. He refers to increasing use of leasing by the public sector, while acknowledging that demand varies significantly between different segments of the market with service-linked leasing agreements showing above-average growth.

Bank-owned finance companies continue to dominate the Finnish leasing market, controlling in excess of two-thirds of the market. Companies owned by importers or manufacturers also hold a significant market share, mainly in car leasing.

No particular supporting measures for leasing have been presented by the government in recent years, although Letto says the reduction of the general corporate tax rate to 20% from the beginning of this year has been a positive development for leasing companies.

His expectations for the leasing market in Finland over the next 12 months are modest, tempered by a challenging operating environment and future economic outlook as well as companies’ limited willingness to invest.

According to Finans og Leasing (Danish leasing association) figures, leasing activity for the first half of 2014 was at its highest level since 2008, while data from the Finance Company Association (Sweden) indicates that leasing volumes in that country declined very slightly between 2012 and 2013 from SEK124bn (€13.4bn) to SEK122bn (€13.2bn).

Anne-Lise Lofsgaard, managing director of the Association of Norwegian Finance Houses says the lease industry in Norway experienced unexpected growth last year and has massively exceeded expectations for 2014.

"The economy is in relatively good shape, although growth is low compared to previous years. However, our members expect the leasing market to be flat in 2015."

According to data from members of the Association of Norwegian Finance Houses, the overall lease market was worth just over NOK40bn (€4.4bn) last year, up from NOK38.8bn (€4.6bn) in 2012 and NOK36.7bn (€4.3bn) in 2011.

However, volumes for the first three quarters of 2014 have already reached NOK33.8bn (€4bn), fuelled by significant growth in the four major segments of office and IT equipment; industrial equipment and machinery; commercial vehicles; and passenger cars.

Car leasing has experienced the highest growth. "Low interest rates over the last few years have made leasing more attractive relative to car loans, which has contributed to a considerable increase in private car leasing," explains Lofsgaard.

Last year the collaborating majority in the Norwegian parliament (the Liberal Party, the Christian Democratic Party, the Progress Party and the Conservative Party) agreed to lower the VAT rate from 25% to zero on the leasing of electric cars and on the leasing of batteries for electric cars, with effect from 1 January 2014.

The amendment, however, has not been completed since the Ministry of Finance is unsure whether the exemption would be in violation of the prohibition against unlawful government support in the European market.

Lofsgaard says there have been discussions around proposed changes to the VAT rates due on car leasing which would extend the period for the lessor’s right to deduct input VAT without partial reimbursement from three to four years, but adds that this is only a proposal for the national budget which has not yet been agreed.

In general, the health of the leasing market in the Nordic region is quite good. The leasing product’s share of overall investment financing has grown in recent years. This trend is expected to continue, while the industry has experienced increased penetration on the back of several vendor finance cooperative deals, signalling increased interest in using lease finance as a tool for increased vendor sales.

This is the view of Sjur Loen, acting CEO at Nordea Finance, who says these developments indicate that the leasing market in the Nordic countries is stable and healthy, even though the global economy is facing headwinds and there is growing uncertainty due to geopolitical tensions which also affect the region.

Loen says: "Based on the ambition to grow the leasing market in the coming years, the general economic development and outlook together with companies’ investment plans and actual execution of these plans have high impact on the development of the leasing market. Consequently, the challenge is very much related to companies putting investments on hold due to uncertainty in the economic outlook, both on micro and macro level."

When it comes to challenges related to regulatory issues, Loen says the Nordic countries are in the same boat as the rest of Europe. "There is an increased demand on reporting, strong focus on compliance and AML/KYC, and capital requirements are increasing with Basel III. The combined effect of all of this is an increased cost of running the business in a compliant way."

He accepts that the regional lease market was flat last year, but says Nordea Finance managed to grow its leasing portfolio by 3% in 2013 with new leasing sales growth of 6%. "Even though the Nordic leasing market is quite homogenous from a European perspective, there are still clear variations between the countries in terms of leasing market growth, outlook and development."

He suggests that vendor distribution of leasing finance is strong and taking an increased share of the market compared to bank distribution. "More leasing finance business is generated in connection to the actual sales situation of the investment object such as the car or the machine. In particular, the car and construction markets seem to have increased finance penetration rates.

"In general, demand is driven by companies’ and consumers’ investment needs and intentions within the industries where leasing financing has the strongest foothold, such as transport/vehicles, industrial equipment and machines, construction and ICT. At the same time, the finance companies (together with vendors) are refining and developing leasing finance value propositions to increase vendor sales."

He expects the Nordic market to register flat growth in 2014, with Finland expected to have the lowest growth due to the uncertainty related to trade with Russia. Norway is the Nordic country where he expects the leasing market to have the most positive experience over the coming year.

Martin Noren, global product manager business area financing – corporates at SEB Retail Banking says penetration rates in the Nordic region are encouraging.

"Between 20% and 30% of all equipment investments that are possible to lease are leased and in the first half of this year we have seen growth in the SME sector reflecting a previously deferred need to invest. However, we also notice slightly decreasing demand for ‘big-ticket’ structured leasing, which accounts for approximately 10% of the overall Nordic lease market."

When asked to outline the main challenges (regulatory and otherwise) facing the market, he refers to five key areas:

  • A slow business investment environment in Europe;
  • Forthcoming new leasing accounting standard regulation;
  • Increased system development costs for lessors due to new regulations;
  • Pressure on big-ticket leasing margins;
  • Budget pressures in a number of companies.

Noren adds: "Segments of the market that are particularly strong include car leasing and vendor leasing – sales financing in close cooperation with manufacturers, suppliers and dealers. On the downside, there is less demand for big-ticket leasing due to the low interest rate level and the fact that large corporations have a very strong capital base/cash liquidity and are primarily using the currently very attractive bond market to get financing if needed."

Christer Olander, director asset finance, project, export and asset finance at SEB Merchant Banking suggests that there are numerous factors influencing demand. These range from the business investment environment in Europe and the rest of the world, banks’ risk appetite for lending to the SME sector, and the need for corporates to restructure or reduce their balance sheets to access alternative funding from the bond/capital market, and investors’ expected levels of return on their investments.

Olander says: "Budget pressures with squeezes on capital budgets increase demand for renting equipment, while the age and operational functionality of the existing movable assets fleet is another consideration. Additional factors include the fact that half of the VAT on lease payments for car leasing is deductible for corporate clients in Sweden, and customers’ requirements for flexible solutions. In Sweden we are seeing an increased need for operating leasing solutions of cars for private customers as an alternative or complement to the traditional company car."

Olander says the Nordic leasing market is still dominated by direct sales from banks. "The second-largest distribution channel is vendor-based – sales financing through independent and manufacturer-owned lessors or cooperation with bank-owned finance companies."

When asked whether the legislatures of the region actively support the growth of the lease finance industry in the Nordics, Noren observes that there are currently no supporting programmes for leasing from governments. He says: "On the contrary, in Finland the government has excluded leasing from the tax allowances which are offered for industrial investments in the form of excess (double) tax depreciations since 2013."

Development banks have been more forthcoming, he continues. "The Nordic Investment Bank does partly support the leasing industry by offering syndicated lending to lessors who are offering leases of investments in assets that are environmentally friendly to state- or municipalities-owned companies. The European Investment Bank is offering funding and guarantee support for lessors who provide leasing to the SME segment for member countries within the EU."

On the issue of likely growth in the leasing market over the next 12 months, Olander states that the Nordic leasing market is still dominated by Sweden, which accounts for some 50% of overall volumes.

"New business volumes are beginning to pick up and we expect to see modest new business volumes growth in the SME segment of 3-5% annually. However, the big-ticket structured leasing segment will (in this low interest rate environment) still be under pressure with negative or flat growth."

In relation to equipment leasing specifically, Société Générale Equipment Finance forecasts growth of 10% in Denmark this year (where transport and construction are the sectors showing the strongest growth, while demand for equipment for industrial production has declined, as has also been the case in Norway), but only slight growth in Sweden.

The company says its Danish and Norwegian markets have grown by approximately 12% over the last 12 months, while the Swedish market has expanded by 5% on the back of strong demand from the construction, transport and forestry industries as well as the Swedish Federal Bank keeping interest rates at zero.

Looking ahead to 2015, SGEF expects flat growth in Denmark, a slight decrease in Norway (although this will depend on sales forecasts from large vendors) and modest expansion of 3% in Sweden, although that figure could change based on interest rates and inflation.