Fred Crawley speaks to BNP
Paribas deputy general manager Jean-François Gervais about
making use of traditional leasing skills in a new banking


Photograph of Jean-Francois Gervais, BNP ParibasAs the
continent’s largest leasing company, according to figures kept by
industry representative body Leaseurope, the strategic position
taken by BNP Paribas Leasing Solutions is of great significance to
the rest of the asset finance industry.

Earlier in this issue, we have seen
how the group, worth some €12bn in new business last year, has
taken a decisive stance to adapt itself to Basel III regulation
before it has to.

Leasing Life editor Fred
Crawley caught up with the group’s deputy general manager
Jean-François Gervais at his office in Paris, to discuss vendor
strategy, preservation of margins, and the position of the Fortis
legacy book.

Fred Crawley (FC):
Can you give a rundown of how BNP Paribas Leasing Solutions
is doing business right now?

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Jean-Francois Gervais
We have three business lines for leasing solutions
– the first is the vendor business, which is easy to understand.
The second one is the bank introduction channel, to serve our bank
customers – this gives us a strong relationship with the banking
network. This channel is largest in France, Italy and Belgium,
because these are the three home countries of BNP Paribas. The last
line incorporates our specialised business for two specific type of
assets: technology assets and heavy commercial vehicles. These are
generally corporate sales sold directly through field reps, and
focusing on large companies with a fleet of trucks or with a very
large number of employees to provide them with IT assets.

The first and the last of these
channels are under my supervision, and are asset-specialised. For
bank-introduced business, we will approach a very broad range of

FC: While BNP Paribas wrote
more business than any other lessor in 2010 (€12bn as opposed to €
10bn for UniCredit Leasing), it wrote nearly double the number of
individual contracts than its two closest competitors together.
Does this reflect a strategic focus?

JFG: In the vendor
business in Europe, we are the very first company regarding
small-ticket business. We are focused on that; having a very
efficient process, web system, scoring systems. 90% of our deals
are decided, in terms of credit, within eight hours. We are able to
underwrite large tickets, too, but I will say the very strong skill
of the company is to run small and medium – we call that retail –

FC: So efficiency must be a
big priority?

JFG: Exactly. And
the market knows that Leasing Solutions is, in that business, the
reference in Europe. But we also have to concentrate on the skill
of serving the customers of the bank, because everything which we
develop operationally for the vendor-based business we provide to
the bank. When you get a new innovation in terms of efficiency, the
bank can benefit.

So in one case, we are a
specialised vendor business, and in another we are a captive of the
bank. If we gather both to take advantage of economies of scale,
especially for the IT systems, but also for the skills of our
staff, for the risk department, for the different resources inside
for the company, we end up with two very strong legs to stand on.
We’re sharing a lot of operational resources with the bank as a
whole, but keeping asset expertise.

FC: At the group’s
presentation for the press [22 September 2011] one of the points
retail banking COO Jean-Laurent Bonaffé made about the leasing
business was that it had a limited cross-sell opportunity – is that
the case?

JFG: These
companies we are doing direct sales and vendor business with, these
are all potential clients for the bank. With the direct business –
the IT management and truck contract hire – we are achieving
cross-selling in that part, already. On the vendor business it is
more difficult, but it is growing.

For example, in Italy, we are
number one in terms of total asset financing for dental businesses.
Over one-in-three dental equipment units in Italy is funded by
Leasing Solutions vendor programme business – that gives us 10,000
dentist customer relationships. As for bank cross-selling, why not
propose that those customers get BNL accounts for their

However, we do not develop the
vendor business only to produce synergies with the bank. We do
vendor business for the profitability of that business, and if we
can provide some customers to the bank, that’s great.

FC: And do you think that the
returns on the vendor business will continue to be as strong as
they’ve been in the previous year?

JFG: We think so.
There are three factors in the profitability of the business:
margin, cost and risk. Regarding risk, despite the crisis, we
reached 1% bad debt charge on our portfolios. Currently, we are
decreasing close to 0.5% – a good performance, given that a lot of
our customers are small and medium businesses.

In terms of cost, we have made strong
investments in efficiency – developing our web interface with
vendors, developing scoring systems, and so on. In terms of margin,
to be frank with you, competition in some countries is less
important now than it was in the past, and when you provide good
service to a vendor, they will accept your margin. We have no major
concerns regarding our margins – yes, liquidity cost is not going
to get cheaper, but I don’t think we are seeing pressure on our

FC: Do you think you have
more flexibility to price upwards in vendor business if that is
necessary to preserve the margin?

JFG: In some
markets it will be easier than in others, but the other thing to
bear in mind is that the bulk of the business done in the vendor
line is not ‘plain vanilla’ leasing – a very large part of our
business is full service leasing. Secondly, some business, for
example in farm equipment vendor finance, is subsidised by the
manufacturer. They would rather subsidise finance than discount
asset price. With these factors, preservation of the margin relies
on the business model rather than a discussion of the rate.

FC: So if we were to look
at a pie chart of the Leasing Solutions book you’d find, say over
the next three years, a much higher proportion of business that
would have been introduced by the banking channel?

JFG: Business
coming from the bank channel is growing a lot because the bank is
moving some loan business to leasing business for risk reasons. For
the first half of this year, we have increased our business coming
from the bank by 30%. Our direct sales growth is very focused on
specific markets, and in those markets we are growing faster than
the vendor business, with more reps in the field and more customers
acquired. So our direct business is growing fast in the UK and in
France especially. Truck contract hire is a big focus in the

Bar chart showing BNP Paribas equipment solutions pre-tax profitFC: There
was a discussion yesterday of exiting the leasing business in the
UK – what does this mean?

JFG: There is a
small confusion in fact here – I can elaborate. The UK business is
split between two type of business, one of which is the Fortis
Lease subsidiary in Glasgow. That business is in run-off mode
because the assets on the book do not fit with our vendor focuses.
We want to express to the market that that book is a large one, and
is decreasing.

However the vendor business in the
UK, both in technology and especially in farming equipment, is
very, very strong. It is one of our most profitable businesses in
Europe: a very strong franchise, with very skilled people who have
been experts on some markets very for a long time.

Are we going to exit the UK?
Absolutely not. We are developing our business there.

FC: How are you
strategically positioning the Fortis book across

JFG: When
reviewing Fortis businesses, we have found that very few link to
our local vendor businesses – where they do, we can use the Fortis
banking channel to acquire business for the Leasing Solutions book.
However, the bulk of the Fortis lease book is under run-off. We are
going to see roughly €2bn of total book asset value decrease
because of that.

FC: Basel III is going to
have a huge impact on the whole industry. How do you think things
are going to change for you?

JFG: There are two
dimensions to this: liquidity and equity. Equity is very easy: you
need to have more equity in comparison with your assets. There are
two ways to do so – the first is to be more profitable and the
second one is to decrease the risk-weighted assets.

Before Basel III it was Basel II,
where we had the ability to use either a standard method or an
advanced method – that advanced method, because of the very good
profile of risk in Leasing Solutions, give us a real advantage.

So Leasing Solutions has decided to
move fast, but it takes a long time because it’s rather complex to
carry out advance method regarding the risk-weighted assets. The
second answer regarding equity is to focus on markets where we
think we can have good return. Again, this means less plain vanilla
leasing and more full service.

That’s the plan in terms of equity
– right now we are integrating all our pricing with the right level
of equity for Basel III. You have seen what our group is saying:
try to be ready.

Regarding the liquidity dimension,
it is difficult right now to know if that will have a strong
impact. Currently, there is no change in the funding policy. What
we can fear is an increase in liquidity cost, because BNP Paribas
goes to the market to fund Leasing Solutions. For the time being
BNP Paribas has a good rating and can get good funding on the world

In the end, we think we are close
to being ready to afford Basel III, in fact. In terms of liquidity,
we are a member of the BNP Paribas group, so at the end, that is a
good place to be.

FC: Where do you see this
business in five years’ time? How would it look different to how it
looks now?

JFG: I will say,
in terms of size, it will be bigger because of the banking channel
development, and in terms of profitability it will be higher
because of the value that we are adding in the vendor business.
Return on equity? 30% return on equity, I think it’s achievable. I
will say it will be a more sophisticated business. The proportion
of business coming in from the web will be higher. The part of the
business processed through automatic tools will be higher, too.
Will it be even more efficient in terms of volume handling? I think

FC: Thank you for your

Pie chart showing BNP Paribas Group's operational divisions share of revenue