ING’s departure from UK asset finance has had a significant impact on the outlook for the market as a whole, with lenders of all types revising strategy in reaction to the news.
ING Lease UK is understood to have written some £1.2bn of business in 2011, concluding the year with a book size of £2.7bn. The firm also made £38.4m profit after tax – up 80% year-on-year – while reducing turnover 1.7% over the same period to £158.9m, according to companies house data.
ING is commonly credited for the broker market being the fastest-growing segment of UK asset finance over the last year. While it is not clear exactly what share the company had of the £3.7bn of brokered asset finance reported by the FLA for the 12 months to 30 August 2012, estimates from competitors range between 30% and 45% meaning a potential funding gap of £1.7bn.
With this funding to be entirely withdrawn from the market by the end of November, speculation is mounting as to how the gap will be filled, and how the dynamics of the market will change.
Even without ING, the broker market is not short of participants, with most lenders in the space having engaged in programmes of expansion well before the Netherlands-owned lessor announced its departure.
The largest players in the sector are Close Asset Finance, Investec Asset Finance, Siemens Financial Services and Aldermore Bank. Societe Generale Equipment Finance, BNP Paribas Leasing Solutions, Hitachi Capital and GE Capital also work through brokers, with distinct sectoral focuses.
The market also contains a tranche of small but growing funders, many of whom have entered since the recession, including United Trust Bank, Shawbrook, Conister Bank, Arkle, D&D Leasing and alternative funder The Funding Circle.
Accurate figures for each lender’s share in the broker market are hard to calculate as new business volumes are kept closely under wraps. None of the major funders contacted by Leasing Life were prepared to offer a solid estimate of competitors’ market share.
Giles Turner, managing director of Societe Generale Equipment Finance in the UK, said: "It’s a very fragmented market, and there are very different competitive landscapes emerging in different asset classes."
So far, Investec and Aldermore have been the most vocal in pledging support to the broker sector post-ING, with the NACFB confirming within 36 hours of the ING announcement that both funders would be increasing the amount of funds they are ready to put into the market.
In a release on Monday, Investec paid respect to ING, while restating its commitment to growing its market presence in UK broker-introduced asset finance.
The company stated its priority was to support existing brokers in the wake of the ING withdrawal, but that it would "welcome applications from prospective new brokers seeking funding lines" where they could demonstrate their performance through management information provided by other funders.
Investec’s head of asset finance, Mike Francis, told Leasing Life that his business has been in growth mode for some time, and added: "Yes we will increase funding into the broker market – we have a very healthy appetite – but we had planned to do so anyway."
Investec has recently moved into new facilities in Reading, with capacity for significant staffing and business volume expansion. Leasing Life understands the business aims to double its portfolio of business acquired through the broker channel within the next year.
The company currently has more than 100 brokers – double its panel in late 2011.
Asked whether pricing was expected to change with the absence of competition from ING, Francis answered that a review of pricing and commission policies had already taken place 6-8 weeks before the announcement, and that Investec’s pricing policy would "not significantly change."
In terms of asset focus, Investec is a significant player in office equipment, estimated to supply between a fifth and a quarter of broker business in that market. It has also been targeting growth in the "harder" middle ticket asset segment – an area that ING’s departure will leave undersupplied.
While it has a slightly smaller presence than Investec in the broker market, new bank Aldermore has grown rapidly since its inception in 2009, and has been equally proactive in its response to the situation. Managing director George Ashworth called ING a "respected competitor" and remarked on the unfortunate timing of the exit "at a time when the UK economy, particularly SMEs, needs liquidity".
"It remains to be seen whether there is sufficient market capacity within the remaining players to take up the slack short term," he added.
Waiting for the dust to settle
Like Investec, Aldermore said its priority would be to ensure existing introducers were well supported where they had lost ING funding, but added: "Brokers who do not currently enjoy a relationship with Aldermore and who may wish to introduce business to Aldermore in the future, can apply for broker appointed status."
The third funder to make a firm and immediate response to ING’s departure was new entrant The Funding Circle. The company issued a release on Monday afternoon which said it would urge intermediaries to take a look at Funding Circle and the asset finance option it provides.
The Funding Circle will lend up to half a million pounds on hire purchase agreement, and will lend up to 120% of asset purchase price.
Later in the week other lenders came forth with invitations to the broker market, as decisions were made about how to align the unexpected market change with strategic objectives.
Marie Dunkley, head of sales for Hitachi Capital’s business finance division, told Leasing Life: "we are known for working through a panel of brokers in the agricultural market, and other niches. We certainly aren’t becoming a generalist willing to take on business from any asset class, but we’ve certainly changed our view with regard to the larger body of brokers working in the "hard" asset market."
Dunkley concurred with the observation made by other lenders, that one of the gaps left by ING will be in the plant market, concerning assets in the £30-40,000-plus bracket. Any broker with a history of wheel-and-tracked asset deals with ING, she suggested, would be welcome to talk with Hitachi about placing business in future.
"Rather than brokers with one transport specialist, for example, we’d be looking for whole brokerages geared towards the type of assets we focus on. Nevertheless, while broker business has not been a huge part of our strategy until now, we will be increasing our allocation of capital to the channel, and we don’t have any particular limit on our appetite at present."
Jervis Rhodes, head of Corporate Banking at Bank of London and the Middel East, said it was recruiting account managers to deal with increased enquiries in the middle-ticket sector.
Rhodes said: "The loss of a significant and experienced funder is clearly detrimental to the UK and therefore, in common with other asset financers and funders who are open for business, we will seek to reduce the impact on the UK business community which we seek to serve.
"The small and mid ticket market remains under served, and we have therefore recruited new account managers in the last three months to deal with an increasing number of inquiries that we are receiving from brokers for middle ticket finance, and from independent leasing businesses looking for wholesale funding."
Other lenders have been more guarded in issuing a response to the market change.
Mike Randall, chief executive of Close Asset Finance, told Leasing Life: "We’re very sorry that ING has decided to leave the market, and for the resulting impact on both the ING team and on borrowers. We reassure brokers that Close Asset Finance remains committed to the market". He added that it was perhaps too soon for his business to settle on a definite strategic reaction to the news.
Similarly, Societe Generale’s Turner – whose business employs a different model from ING’s, partly due to its heritage in vendor finance – told Leasing Life: "I’d say we have a holding position; we have to stay focused on our own strategic objectives. Obviously with existing broker relationships we will do all we can to help, and it may also impact vendors – we would always look to assist them too – so on the whole we are sticking to our strategic path but that will not stop us taking advantage of sustainable opportunities that will appear as the dust settles."