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May 1, 2008updated 12 Apr 2017 4:53pm

German lessors face tough times

German lessors face tough times In the first half of 2008, the German leasing market achieved growth of more than 10 percent

By Prof HC

In the first half of 2008, the German leasing market achieved growth of more than 10 percent. Today, however, following intensification of the international financial crisis, leasing companies are largely cautious and it has become an established fact that the crisis has affected even German lessors.

As such, the federal state banks that previously refinanced leasing businesses are increasingly retreating from this market.

Large institutional leasing companies can use corporate refinancing as an alternative because they mostly have a suitable banking background.

However, many small lessors have considerable refinancing problems and in some cases are no longer able to support their customers with new business. Even large captives have significantly fewer corporate resources for their leasing business.

Significant market consolidation is looming. Various institutional leasing companies that were previously successful on the market are now up for sale. On the other hand, the general rise in the cost of credit has, of course, also made it easier for lessors to enforce considerably higher margins in new business.

At Expo-Real in Munich last month, it was reported that banks would be setting completely new conditions in the area of property financing.

Whereas, until recently, investors required equity capital of only 15 to 20 percent, many capital market banks are now demanding that borrowers have 50 percent of the equity capital for commercial property financing before a lending commitment is made.

Naturally, this also affects many classic property leasing objects in Germany because – due to the good solvency of the leasing customers – the mortgage and capital market banks have, in the past, mostly taken on 100 percent financing on a nonrecourse basis.

It remains to be seen whether the recapitalisation shield of €80 billion, offered to the banks by the Federal Republic of Germany, will be sufficiently exploited to maintain the borrowing power of the banks and avoid a credit crunch.

If this happened, it would have a massive impact on the leasing business, which is predominantly refinanced by credit.

In addition to this is the severe decline in economic growth, which will result in a corresponding decline in investment financing and, therefore, more limited leasing business.

The industry is rightly wondering how its customers will survive the impending recession.

Prof HC Klaus Feinen

The author, now retired, is on the board of Germany's Association of Chief Financial Officers

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