Invigors, in conjunction with Leasing Life, recently conducted a pan-European survey of professionals across the asset finance industry. The objective was to establish a benchmark of business confidence within the sector and to provide some pointers as to the direction in which the industry is heading.
Despite optimism on new business volumes and a bullish outlook regarding the potential for acquisition, there is clear evidence that a storm is now hitting the industry. Worries over bad debt and restricted availability of capital is resulting in tougher underwriting criteria, reduced service levels and pressure to reduce costs. While many lessors see opportunities in the current fallout, our survey raises questions on whether all these ambitions can be realised.
Outlook on new business still bullish
Notwithstanding the credit crunch and recent turmoil in the markets, over half of those taking part in the survey still expected an increase in new business over the next six months - with most anticipating an increase of over 5%. Survey respondents from Continental Europe were notably more optimistic than those in the UK, where the effects of the credit crunch appear to be more keenly felt.
Focus on increasing margins
It is no surprise that many lessors are looking to improve margins. 45% of respondents expected margins to increase over the next six months with over 20% anticipating a rise in excess of 25 basis points overall. No more than 15% expected margins to fall and most of these thought the decrease would be under 25 bps.
Banks or bank-owned lessors were the most aggressive on margins. Nearly 80% of these expected margin growth over the next six months with the majority predicting an increase in excess of 25 basis points. Other groups were more mixed in their response, under 40% of independent finance companies expected margins to improve while brokers and captives were clearly under more pressure with no more than a third anticipating any form of improvement.
Bad debt remains a concern
There was little optimism apparent when it comes to bad debt. None of the respondents expected this to fall during the next six months. Nearly two-thirds of those surveyed thought bad debt would increase, though most believed this increase was unlikely to exceed 25%.
The research supported evidence of a relationship between margin growth and bad debt. Nearly three-quarters of those anticipating margins to increase also expected an increase in bad debt. Funders are clearly looking to increase margins in order to cover a growing bad debt ratio, and there's a growing recognition of the need to achieve a return on the increasingly scarce liquidity available to them.
Capital availability is being squeezed for some lessors. Just over half of those surveyed expect capital availability for their business to remain the same but 37% expected this to decrease over the next six months - typically by up to 10%.
The impact of credit crunch can be seen in restricted availability of capital, tighter underwriting criteria, cost reductions, and aversion to risk. Nonetheless the survey findings are not as pessimistic as events elsewhere in the finance industry would suggest. Is the asset finance sector in denial or is it more robust than other finance sectors under the cosh?
To obtain a copy of the survey findings, please e-mail richard.ryan@invigors.com

