Antonio Fabrizio and Jason T Hesse report on the disparity of willingness across Europe by lessors to lend to small and medium-sized enterprises.
Small and medium-sized enterprises have long been the bread and butter for many European leasing economies, but the recession in 2009 turned the market on its head.
In the UK, Chris Stamper, chief executive of ING Lease UK, believes that the SME market will not improve until the second half of the year.
“SMEs could be as badly hit in 2010 as they have been in 2009,” said Stamper. “Certainly until the summer, we shouldn’t expect a great increase in new business volumes.”
Stamper believes it is a question of demand, rather than supply: “We’re seeing low levels of borrowing in the UK market place because demand is low. Companies have been battening down the hatches and repaying debt.”
Cashflow key to survival
SMEs “will only survive in 2010” if they have been making sure they are in positive cash flow situations, he said.
Additionally, lessors could find it difficult to know which customers they should lend to. “How do you start lending in 2010 when you’re looking at 2009 balance sheets that, in many cases, may well be wrecked?” he added.
Meanwhile, as the Italian economy relies heavily on SMEs, it is expected that banks and lessors will continue to substantially support them.
According to Assilea’s president, Rosario Corso, this will be done on the same lines as last year, with banks providing credit lines and leasing companies restructuring contracts.
Also, many Italian SMEs are benefitting from a government-backed payment holiday (see box, above), which could prove vital to troubled enterprises.
In Central and Eastern Europe, Polish SMEs should suffer less than their neighbours, however.
A survey by Poland’s largest lessor, EFL, revealed that the company’s SME customer base had decided to postpone investment decisions during 2009, but that it should pick up again this year.
Andrzej Krzeminski, the company’s CEO, said that local transport and logistics firms have suffered heavily, “but this segment has not been investing for more than one year. So there is an expectation that it will soon start to buy again”.
Also, Polish firms in construction and housing should see an increase in infrastructure projects, due for instance to the 2012 UEFA football games.
In the Czech Republic, according to Jiri Pulz, secretary-general at the Czech Leasing and Finance Association, companies will start investing again in H1 2010 and a slight inter-annual rise in leasing volumes is expected by the end of 2010.
Pulz believes that the percentage of new investments in machinery, equipment and means of transport (over one quarter of total investments last year) will still be financed by leasing.
The economic situation has deteriorated in Romania, and Bas Hoekstra, vice president at leasing association ALB, said that SME investments are a “very sour point” in the near future, as although many SMEs rely upon government projects for their investments, they are not being paid.
He believes, however, that as soon as the political situation improves and a new government is fully functioning, things could pick up again, if the right policies are in place.
Meanwhile, German lessors, too, are more pessimistic about SME investment this year.
The Ifo Institute of Economic Research estimates that SME equipment-related investment will decrease 5-6 percent in 2010.
“It just isn’t a climate for investment by SMEs,” said Friedhelm Westebbe, managing director of the BDL, the German leasing association. “Maybe in two or three years will we see a change in business. There is no reason for optimism – at best, we estimate a stagnation of business this year.”
Lessors seek cure for plague of insolvencies
Insolvencies and bad debt impact hugely on a lessor’s business, but some countries have taken innovative steps to fight back.
One effective approach, taken by Italy’s main lessors, was to set up a moratorium on debt. Lessors such as Banca Agrileasing, UniCredit Leasing, Leasint, Ubi Leasing and MPS Leasing joined together to suspend their SME customers’ debts until June this year.
“Thanks to the moratorium, the Italian market should not see lots of defaults – but rather a lot of credit management,” said Stefano Esposito, of Sardaleasing. “Based on 2009’s figures, we have projected that bad debt in our portolio will total around 1 percent of our outstandings this year.”
Across Europe, however, some others also believe the worst may be over.
“We hit the bottom line, and should not see much worse in terms of bad debt and insolvencies,” said Bas Hoekstra, vice-president of the Romanian leasing association.
Polish lessors also expect bad debt will fall.
Andrzej Krzeminski, head of EFL, the country’s largest lessor, explained: “We expect an improvement. During the worst of times, bad debt in our portfolio accounted for 1.8 percent of outstandings, but this has already decreased to 1.2 percent – and we project it will be below 1 percent in 2010.”
In the UK, after topping nearly 5,000 liquidations in the second quarter of 2009, insolvencies have also started to fall. Indeed, much to the relief of British lessors, in the third quarter, the UK’s Insolvency Service data showed 10 percent fewer compulsory liquidations than the previous month.
Not all lessors are as optimistic, however, as many SMEs’ tax rescheduling will mature at the start of the year, potentially leading to a higher number of companies becoming insolvent.
“HMRC will be less likely to do a deal than they have been, and that will put more pressure,” said Chris Stamper, ING Lease UK’s chief executive. “It will be quite tricky for the industry.”