Authored by Ludwig Fischer, Invigors Germany
After an all-time high in 2008, the German Leasing Association (BDL) recently reported a record decline in results for 2009. Although the BDL includes only 10% of asset finance companies in Germany, these represent approximately 90% of new business volumes so it's reasonable to assume that their data is very representative of the leasing market as a whole.
Overall the BDL is forecasting new business volumes to fall by 22.6% in 2009 to Euro 42.1bn, the most dramatic drop in its history. The majority of this is equipment leasing (defined as moveable capital goods) which is forecast to shrink by 22.7% to Euro 39.3bn compared to 2008. The decline is mirrored in overall capital equipment investment levels which are projected to fall by 20% this year, according to the latest forecasts from the Munich-based ifo institute. What is also notable is that, in previous economic downturns, the asset finance industry played a stabilising role in maintaining lending levels but in the current recession the reverse has been true as, even with reduced levels of investment, the leasing penetration rate has decreased slightly to 21.1%
The reasons for this steep decline in asset finance new business are not hard to find. A collapse in demand for capital equipment, partly caused by the sudden and rapid fall in German exports as a result of the global recession, has been combined with severe restrictions on capital availability from the financial sector plus the consequences of tax reform in 2008 which hit the asset finance industry quite hard. A recent survey amongst BDL members revealed that two-thirds of independent asset finance businesses claim to have restricted access to liquidity which is significantly impacting their ability to write new business.
A more worrying fact is the increasingly negative year-on-year growth trend over the past four quarters. The decline in Q1/2009 was 11.8%, this accelerated to 18.1% in Q2, and 25.5% in Q3. A decrease of 27.5% is projected for Q4. Moreover this trend has been evident across the board, for the first time ever all asset categories in the equipment leasing sector are showing an accelerating decline.
Will
the German asset finance market turn round in 2010? The ifo
institute are forecasting that GDP growth will recover to 1.7% next
year while investment in machinery and equipment will grow by a
sluggish 1%. Normally this would imply that asset finance volumes
would return to growth levels of 5-7% but with the current
restrictions on capital availability that remains highly uncertain. The latest ifo survey shows that business confidence is returning to Germany but, given the current shape of the leasing industry, will there be the funding available to support it?
If you're interested in learning more about the opportunities offered in German asset finance market then contact Ludwig Fischer on +49 7073 913 265 or e-mail ludwig.fischer@invigors.com.
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