COMMERCIAL CREDIT CCR STRONG LEASING MARKET
The European leasing market has shown strong signs of recovery in the first quarter of 2015 By Jean Pierre Vissers
KEY performance indicators of a sample of 17 European lessors have shown a strong improvement in the first quarter of 2015, with some reaching their highest recorded levels since the Leaseurope Index began. All show a substantial improvement on the first quarter of 2014, and an especially large recovery compared to the fourth quarter of 2014. Total new leasing volumes reported
by the sample of firms increased by 6.4% in comparison to the same quarter a year ago, reaching just under €17bn. The portfolio of outstanding contracts remained broadly stable, declining by -0.2%, while risk-weighted assets decreased by a larger amount (-2.2%). This highlights the declining portfolio risk that leasing companies are currently experiencing. Total pre-tax profit of all the companies
increased substantially by 8.7% for the first quarter of 2015 in comparison with the first quarter of 2014. The average profitability ratio increased from
32.2% in the first quarter of 2014 to 40.2% in the first quarter of 2015 – the highest on record in the survey’s history. It is important to note that the quartile values of the profitability ratio are widely dispersed within the firm sample for the reporting period, although only a small minority of participants experienced a negative ratio. Operating income exhibited continued
growth in the first quarter of 2015 compared to the same period a year ago, increasing by 8.7%. Operating expenses increased by a smaller amount (3.6%) resulting in the average cost-income ratio falling to 44.9% in the first quarter of 2015 compared to 46.5% in 2014. Loan-loss provisions decreased
substantially in the first quarter of 2015 (-22.1%) compared to 2014, making it the fifth consecutive quarter of declining loan-loss provisions. The average annualised cost of risk fell to its lowest level in three years, dropping to 0.58%.
RoA and RoE increased significantly in
the first quarter of 2015 compared to 2014, reaching their highest values since the inception of the index by far at 1.6% and 206, respectively. These high figures are due to strong profitability increases despite stable leasing portfolios and declining RWAs. Record profitability, RoA and RoE ratios
in the first quarter of 2015, combined with the lowest cost of risk ratio in three years, highlight the strong financial position of the leasing industry as European economies return to growth. Significantly declining loan-loss provisions are driving these positive developments, showing a reduction in leasing portfolio risk, as new business volumes are growing. As domestic demand in Europe continues to strengthen into 2015, investment levels should also pick up, a good sign for continued high performance in the leasing business. CCR
Jean Pierre Vissers is executive vice president of De Lage Landen Vendor Finance Europe
LITTLE BOOST TO ECONOMIC GROWTH
CONTRARY to widespread assumption, the ‘sea-change’ of liberal market economic policies introduced since 1979 has not boosted British growth. While conventional wisdom holds that liberal market policies followed since Margaret Thatcher’s 1979 election remain the best model for the UK economy, albeit with additional banking safeguards, in our report we ask whether this benign view of the post- 1979 world is a true reflection of the economic facts. Contrary to widespread belief, GDP
and productivity in the UK have grown more slowly since 1979 compared to previous decades. Average annual growth of per capita
GDP fell from 2.6% per annum in the three decades prior to 1980 to 2.2%
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per annum in the following decades to 2007, and a decline of 0.2% per annum since 2007. The deterioration in the growth of labour productivity after 1979 has been even more marked: 2.9% per annum in the three decades prior to 1980, compared to 1.7% per annum from 1980 to 2007, and a decline of 0.2% per annum since 2007. The ‘volatility’ of economic growth
has also been much greater – coming in large waves in contrast to the ripples of the 1950s and 1960s. Although inflation and industrial disruption have improved since 1979, unemployment and inequality have been higher. The average unemployment rate since 1979, at 8.7%, has been two-and-a- half times higher than the average for 1950 to 1979.
www.CCRMagazine.co.uk Only the deregulation of bank lending
has led to faster GDP growth through boosting both consumer spending and house prices up to the financial crisis in 2007. However this was fuelled by huge, and inevitably unsustainable, rises in household debt ending in financial crisis. Since 2007 the underlying weakness commonly called “secular stagnation” has been revealed, and per-capita GDP is now 20% below what it would have been if the 1950-1979 trend had continued, but with no prospect of regaining that trend.
Edited from The Macroeconomic Impact of Liberal Economic Policies in the UK, a report by the Centre for Business Research at University of Cambridge Judge Business School
July 2015
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