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October 29, 2010updated 12 Apr 2017 4:18pm

Databank: November 2010

Monthly new business volumes written by FLA members in August present again an unclear, possibly transitional picture, as the market struggles to move from decline into growth After 19% growth in June then an 8% fall in July, business finance volumes (excluding big ticket) were exactly level with the same period last year

By Peter Hunt

Peter Hunt analyses market statistics for the year to 31 August.

 

International Decision Systems logoMonthly new business volumes written by FLA members in August present again an unclear, possibly transitional picture, as the market struggles to move from decline into growth. After 19% growth in June then an 8% fall in July, business finance volumes (excluding big ticket) were exactly level with the same period last year. Underlying this growth, business car finance was down 9% while other assets presented a 5% volume increase.

Big ticket transactions over £20m (€22.5m) hit a new low, with only £46m of new business recorded. The comparison with previous years shows the scale of the decline: In the three Augusts 2007-2009 the market wrote £463m, £614m and £236m respectively. In the 12 months to end of August 2010, big ticket volumes fell to £1.9bn. This is 70% below the peak of £6.4bn in the 12 months to end November 2008.

Across business and consumer, motor finance in August was up 4.6% despite registrations being down 18% on 2009. Penetration of consumer registrations appears strong, with finance volumes down 2.6% but registrations down 38% (overall growth in consumer car finance was driven by finance of used cars, up 22% on 2009). August is historically a low month for new registrations, being followed by the new ‘60’ plate in September which should result in a better month for motor financiers (albeit registration volumes are forecast by SMMT to remain subdued to the year end).

Within the business finance markets, with the exception of cars (at least for the time being, with the last two months having been negative) and business equipment, finance volumes (as shown by a three-month rolling average) continue to lag 2009 volumes. Some positive signs exist. Truck and van registrations showed good annual growth in August, reflected by a growth in finance volumes. Plant and machinery has shown annual financing growth in four of the past five months. IT equipment also showed growth in August

Within the business finance markets, with the exception of cars (at least for the time being, with the last two months having been negative) and business equipment, finance volumes (as shown by a three-month rolling average) continue to lag 2009 volumes. Some positive signs exist. Truck and van registrations showed good annual growth in August, reflected by a growth in finance volumes. Plant and machinery has shown annual financing growth in four of the past five months. IT equipment also showed growth in August. On the other hand, aircraft ships and rolling stock volumes reached on £25m, a new low.

Information regarding distribution channels appears equally inconclusive. After good growth in July, sales finance delivered a weaker performance in August. Broker-introduced volumes held up well, apparently reflecting comments made by lessors serving this market that supply is outstripping demand. However, assuming consistency of reporting behaviours, comparison of their respective market shares over recent years indicates a potential shift in finance distribution.

The rise and rise of lease/hire purchase appears to continue, up 24% on last year (while all other product categories declined at 20%), reaching 47% of market volumes in August.

 

Comment

Based on economic outlook and sentiment, finance volumes look set to ‘bump along’ for some time yet. Low new business volumes will lead to further reductions in portfolio size. Finance companies may need to once again review their scale-related operating efficiency and headcount levels and seek competitor-based growth tactics (including acquisition).

Table showing FLA new business finance for August 2010

 

Bar chart showing UK new business finance for August 2010

The author is a partner in the consulting and services firm Invigors.

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