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July 1, 2010updated 12 Apr 2017 4:22pm

Databank: July 2010

After Marchs year-end high, FLA members business finance volumes for April were understandably lower but still reinforced the view that the market is slowly turning around. Excluding big ticket, new business volumes were £1.3bn (1.6bn), down less than 1% on last year

By Peter Hunt

Highlights

After March’s year-end high, FLA members’ business finance volumes for April were understandably lower – but still reinforced the view that the market is slowly turning around.

Excluding big ticket, new business volumes were £1.3bn (€1.6bn), down less than 1% on last year. Big ticket finance remained in the doldrums at £90m new business (down 66% on last year).

Motor finance was up 13% on last year, though annual growth was materially lower than February’s 64% and March’s 31%. Consumer finance dropped 9%, with all sub-categories except car point-of-sale showing continued annual decline.

Car finance remains the main driver of growth in the business finance market, up 14% on April last year; using a three-month rolling average to mitigate for quarter-end spikes, the annual growth rate is 19%.

Using the same metric, other asset categories continue to show a declining trend in new business volumes, but the rate of decline is slowing rapidly – suggesting the bottom of the lending cycle will soon be reached. Commercial vehicles, IT and business equipment appear to be leading the way, with plant and machinery and other major asset categories some way behind.

Also of note is the increase in lease/hire purchase volumes (in April, representing 41% of market volumes) and the continued strength of direct finance (67% of market volumes), factors that have been evident for the past six to nine months.

It is quite possible these are both a function of supply rather than demand, as lending ability has become concentrated on bank-owned direct lenders where straightforward products represent large volumes.

Recording £121m in April, for the first four months of the year non-car residual risk leasing has run at below 50% of its level a year ago. Residual risk leasing is now running at 13% of total non-car financing volumes (including big ticket), having peaked at 28%.

Notably, this drop has coincided with a fall in big ticket volumes, where assets often have material residual value at the end of a lease period – the current figure may reflect a truer level of operating leasing in the non-car small-mid ticket market (albeit a number of lessors are reported to have moved away from taking residual risk positions).

 

Comment

The FLA statistics may be starting to reveal a period of consolidation within the market, with the “haves” (those with lending capacity, mainly bank-owned, direct lenders) taking share at the expense of the “have nots” (independent finance companies with less access to lending capacity but who often drive innovation or added-value finance products within the market).

This creates some interesting opportunities for the “haves”, who are able to dominate a market that offers lower competitive intensity, strong margin and improving arrears performance, and little need for product or service innovation.

A combination of processing efficiency (sometimes at the expense of customer service standards) and continued liquidity may be all that is required for bumper profits in 2011-13.

In such a market, an entrant can achieve lending targets while securing a strong new market position, either when developing a unique market position or (potentially) simply joining the pack.

 

The author is a partner at the consulting and services firm Invigors, and can be reached at peter.hunt@invigors.com

FLA new business finance – April 2010

UK new business finance – April 2010, ValueUK new business finance – April 2010, % change

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