With increased support from its parent bank and optimism regarding the "Basel III effect" Grant Collinson talks to ABN AMRO Lease about "growing the leasing cake".
While bank-owned leasing firms across Europe mull over the potential impact of Basel III with furrowed brows, one Dutch leasing business is relishing the potential opportunity the regulation will bring.
ABN AMRO Lease, the leasing division of ABN AMRO bank, has seen new business volume grow by a third year-on-year for the first six months of 2012, Robert Peterson, the company’s director of marketing and strategy told Leasing Life.
The 33% volume increase has helped ABN AMRO Lease grow its portfolio by 7% to 3.1bn at the end of June 2012 from the 2.9bn total at the end of 2011.
This growth is a combination of an increase in demand for finance and a greater level of business won from the market, says Peterson, a business drive which is in part the result of impending Basel III framework.
"We have increased the number of clients because we have been quite successful in convincing the bank that leasing, under Basel III, is a better product than lending," says Peterson. "It is more capital-efficient to sell leases to the clients."
The Basel III effect
The bank is paying more attention to leasing, says Peterson, and advising its business clients of its potential as a lending product.
Peterson says the business bank managers are promoting leasing as an option and ABN AMRO’s clients themselves have become more interested in the potential of leasing products.
"It used to be if a client came to the bank asking for finance for a crane, for example, then automatically the banker would offer a loan. Today that has changed."
This "Basel III effect" is becoming an increasingly important driver for business growth, he adds.
While ABN AMRO Lease does not make public its new business volume breakdown, Peterson explains business for the first six months of the year is divided roughly 45% to SMEs, 28% to corporate clients, 22% to large or international corporate clients and 5% to the public sector which for ABN AMRO is predominantly lending to the medical sector.
Despite an obvious focus on small business lending, which has earned ABN AMRO Lease a place as a finalist for Leasing Life‘s SME Champion of Year award at this year’s European awards in Barcelona, Peterson says the leasing division simply tries to serve ABN AMRO’s clients where there is demand.
Demand for finance from the Dutch small business sector is such that ABN AMRO Lease set up a programme for leasing specifically aimed at providing finance for start-up businesses at the start of this year.
How demand for leasing fluctuates in ABN AMRO’s home market of the Netherlands is of the upmost importance to the lender given lending generated from the country represents around 90% of the leasing division’s business with the remaining 10% divided across the UK, Germany and Belgium.
ABN AMRO Lease’s strategy is to first and foremost focus on serving the clients of ABN AMRO bank in the Netherlands, says Peterson.
"Therefore, you won’t see us searching for a lot of new business in the UK market, for example, but if a Dutch client with a UK subsidiary is looking for a lease in the UK then we will definitely do the business."
Despite this prioritising, Peterson says ABN AMRO Lease does have ambitions to do business in other European local markets but this needs approval from the parent bank.
Referring again to the wider economic conditions, Peterson says ABN AMRO Lease has seen a slight increase in late payments but the lessor’s risk and recovery team have kept write-offs to a minimum.
"So far we are looking at a normal number write-off for the period but it needs more attention from employees and from management to manage the non-performing portfolio," Peterson says.
Despite the economic situation, ABN AMRO Lease is confident the growth experienced in the first half of the year will contribute to a successful 2012, although Peterson predicts business levels for the second half of the year will not match those of the first.
Peterson adds, with the support the leasing arm is receiving from its parent bank, he expects further growth in 2013.
That said, the market is not without its challenges but Peterson feels ABN AMRO made a strategic choice to favour leasing and that will give his leasing division an advantage over competitors. However, Peterson adds, the advantage is largely over foreign-owned rivals active in the Netherlands rather than major Dutch rivals De Lage Landen and ING Lease, which together with ABN AMRO make up around 70-75% of the domestic leasing market.
The major challenge to ABN AMRO Lease is one Peterson says the firm shares with its rivals: to grow leasing penetration, "the leasing cake", in the Netherlands.
Peterson says investment in leasable equipment in the Netherlands in normal year is around 40bn but this year it is 18% lower while the equipment leasing market is around 4bn per year.
"That is the challenge for leasing in the Netherlands – to make the cake bigger in a decreasing market of equipment investment. "I believe, if you look at what is happening in our bank, with the bank stimulating leasing, I think there is a good chance for us to grow despite economic circumstance and despite investment levels being low. Growing the cake is the biggest challenge."