Leaseurope annual convention discusses a “new narrative” in asset finance

The convention theme was “A new narrative”. In previous Conventions we heard plenty about key strategic trends affecting the leasing industry: servitisation, digitalisation, circularisation and diversification. (Translation: In future, we’ll be offering more flexible leasing options, often online, helping to ensure equipment is well-utilised throughout its useful life and then carefully recycled, and all this will be achieved by a wide range of different types of firms and individuals within them).

The strategic trends were discussed again in Malta, but this year’s convention, attended by around 400 senior leasing professionals from across Europe, was less about identifying strategic trends and more about how lessors can change their businesses to prepare for them.

The keynote speaker for the opening plenary session was UK “undercover economist” Tim Harford, who set out common barriers to seizing opportunities for making changes.

He suggested companies should carry out a series of quick and cheap experiments and adapt by learning from feedback.

That challenge was one that resonated throughout the two days of the convention, which was opened by Leaseurope director general Leon Dhaene (pictured).

The message was echoed in a hard-hitting customer focus session chaired by John Rees, chief commercial officer of Societe Generale Equipment Finance.

The panel consisted of three firms that can be seen as customers of the leasing industry; KION Financial Services, Dell Financial Services, and Oracle Financing.

Lessors need to be more willing to experiment to solve customer problems (in this case, working with IT providers to meet their customers’ financing needs) it was suggested.

The panel looked for finance companies willing to take a “let’s try it out and see how it goes” approach, not those that blame regulations for not allowing them to take risks.

In a session reviewing the state of play and outlook for leasing in Europe and beyond, chaired by Peter-Jan Bentein of the Dutch Leasing Association NVL, industry leaders including Andy Hart of Investec, Thierry Faure of ALD, Charlotte Dennery of BNP Paribas and Anthony Cracchiolo, chair of the US Equipment Leasing and Finance Association, reflected upon the migration of leasing from supporting investments focused on physical equipment to investments focused on services.

Finance companies should utilise their “goldmine”’ of data and knowledge around customers, assets and equipment performance to develop their services, it was suggested, not rely on traditional leasing models remaining relevant.

Does the “let’s try it” approach apply even with new regulation? In the session on the new international lease accounting standard, chaired by Mark Venus of BNP Paribas, the industry was reminded that IFRS 16 remains problematic.

It introduces a fundamental mismatch between lessee and lessor accounting, needs a lot of extra data on today’s operating leases, and creates significant new differences between large company accounting rules in Europe and the USA.

Customers using IFRS are likely to need support from their lessors. Lessors might provide summaries of lease agreements (Leaseurope has prepared an optional reporting format for lessors, the IFRS 16 Specification, that will be distributed through participating member associations) or they could explore new financing arrangements outside the scope of the new rules.

Finance companies should try extending their customer service value proposition to support lessees, it was suggested, not avoid engaging with customers on accounting due to possible liability risks.

Both bank and non-bank lessors could benefit from exploring new funding options, a panel chaired by Enrico Duranti, of Iccrea BancaImpresa, agreed.

A traditional single funding source, ‘originate and hold’ approach could become less relevant considering tighter bank prudential regulation, the ending of central bank schemes including the European Central Bank’s targeted longer-term refinancing operations (TLTRO), and increased appetite for funding asset finance from investors.

Finance companies should ensure they are investment-ready, with good loan performance data and evidence of robust origination and servicing procedures, it was suggested.

That way, they can start to experiment with new funding options, not miss out on potentially more attractive sources of capital.

There is a growing appetite from investors for funding leasing in Europe, but getting started in accessing it can involve considerable work.

Malta 2017, ‘A new narrative’, provided a different atmosphere to previous Leaseurope conventions.

The message seemed to be: “We know where we need to be, but are we seizing the opportunities and overcome barriers to making the necessary changes?”.

Many will have left Malta with some new motivation to share that challenge across their businesses.

The next Leaseurope Convention will be held in Venice on 4-5 October 2018.