A recent survey of some 200 European leasing companies, conducted by consulting company Ineum, revealed that reconciling national-level risk priorities with group-wide strategy will be a major issue for leasing networks over the coming year.
The study, directed by Eliana Boudet, head of risk services at Ineum and formerly of SG Equipment Finance, found that more than 50 percent of participants were actively engaged in creating new risk strategies, and that risk of client default was by far the greatest among lessors’ concerns for upcoming months. Asset devaluation, by contrast, was found likely to become a source of less concern, despite increased recovery difficulties.
Another major issue over the next year will be ‘concentration risk’, a phrase used to describe the risk associated with investing heavily in particular sectors, national markets or assets. This risk can be somewhat mitigated in a leasing network by the disposal of recovered assets through subsidiaries in different national markets.
According to Boudet, respondents’ perceptions of risk were markedly different at group and national levels. Liquidity and market risks (from exposure to interest rates, forex, etc) were not huge concerns at group level, but had a much increased importance at national level due to the volatility of individual national economies.
Another problem identified was the pressure for more risk decisions to be shared with central risk functions – a pressure that can work against the ability of subsidiaries to make quick decisions.
Boudet commented: “The difficulty is often in giving national entities the ability to make risk decisions based on local knowledge, while still adhering to a global view.”
According to the study, however, there are possibly exceptions to this. “One can work with them on big exposures, such as deciding when to litigate against a counterparty. In that instance, whether the decision is made to hold back and expose further, or act and possibly destroy the relationship, will affect the necessary level of provision,” it said.
The report also made clear that as competition begins to return to the market, speed of decision making will only become more important for lessors.