Databank

Highlights

FLA member business finance
volumes in December totalled £1.5 billion (€1.7 billion), of which
the large majority (£1.4 billion) related to small-medium ticket
activities (below £20 million ticket size). Big ticket had a third
very weak month in a row, with fourth-quarter volumes down 77
percent on the same period last year. Even the quarter end seemed
to have little impact on December volumes, which were £1 million
down on the previous month.

Motor finance continues to
show positive results, though this remains led by consumer rather
than business activity. Business finance on cars in December was
down 2 percent on the previous year, compared to consumer motor
finance which was up over 50 percent. Total consumer finance
volumes were up on both a month-on-month and previous year basis;
however, stripping car finance out (which was pushed artificially
upwards through the government’s scrappage scheme) reveals a 7
percent year-on-year decline.

While December’s small-mid
ticket business was down 15 percent on the previous year, it
continues to offer signs of a bottoming-out of lending volumes
rather than that the bottom has been reached. All asset classes are
still in decline, but at a slowing rate. It would seem likely we
can expect bounceback first in car and IT equipment volumes, with
plant and machinery likely to lag.

However, the impact of the
scrappage scheme may be to delay a return to growth for car
finance, with the SMMT predicting overall volumes in 2010 will be
below 2009 figures unless strong demand comes from the fleet sector
and the availability of financing.

The SMMT is equally subdued
about the 2010 prospects for van and truck registrations. Almost
surprisingly, the MTA predicts an increase in UK orders for machine
tools, suggesting there could be “a fairly strong recovery in
2010”.

Certainly one positive
piece of news seems to be that destocking across the economy now
seems to be substantially complete, with greater sell-through of
manufacturer product likely to follow. With continued overcapacity,
concerns over the strength of any economic recovery and
unwillingness to draw on cash reserves (this factor could be a
funding opportunity), the Bank of England’s Agents Report for
January considers UK investment intentions as “muted”, translating
into a slight but continued decline in 2010.

One lower volume asset
class deserving a mention for its December funding performance is
property, which at £73 million presented its highest month since
records began in 2007. While this may be a one-off, recent months
have consistently shown greater appetite amongst FLA members for
funding this asset class.

Having held up well
throughout 2009, broker-introduced business in December accounted
for only 11 percent of total volumes, a low point since broker
volumes were first recorded by the FLA in 2007. Overall, in volume
terms 2009 was a less bad year for brokers than for other channels
(down 25 percent on the year compared to direct finance down 31
percent and sales finance down 33 percent), though significant
questions marks remain over supply-side weaknesses and limited sign
of recently-exited players returning in the foreseeable future.

Comment

While 2009 will be
remembered by many as an annus horribilis, 2010 will not
necessarily be much better. The big ticket market looks troubled
and funding volumes don’t yet appear to have hit their low point in
any asset class. Nonetheless, with continued market liquidity
constraints there will be strong profit opportunities for those
willing and able to lend, and with a business model adjusted to the
changed market conditions.

The author is a partner at the
consulting and services firm Invigors

FLA new business finance –
December 2009