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
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
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
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
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).
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
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