November 2019 – The leasing business in Germany has followed a record-breaking trend over recent years. Nevertheless, the business is continually becoming more fragmented – this significantly increases the outlay for leasing businesses and their refinancers. An innovative solution for this is presented by the refinancing of receivables with the aid of digital platforms. A round table will be focusing on this at the 15th "STRUCTURED FINANCE" event on November 27 in Stuttgart.
The numbers have been going in one direction for years: upwards. After two record years, in 2018 new business of the German leasing economy grew once more by 4.5 percent. For the current year, 2019, the sector is anticipating growth of between three and four percent. The slight slowdown in pace compared to 2018 is attributed to the depressed economic outlook, explains Kai Ostermann, president of the Federal Association of German Leasing Companies (BDL): "Leasing goes hand in hand with the economy."
But in the worst case, this is just complaining at a high level. The demand for leasing has been high for many years. According to BDL information, around 54 percent of the externally financed investment in 2018 was realized via leasing. "This means that leasing dominates all forms of financing," says Ostermann, head of the association. The leasing business is the link between the real economy and the financial world. Its attention is drawn to medium-sized businesses, as around 90 percent of contracts are concluded with medium-sized clients.
Leasing companies in Germany invested 69.7 billion euros for their clients in real estate, machinery, vehicles, IT equipment and other commodities in 2018. The new business in machinery developed particularly well. At seven percent, telecommunication engineering and signaling equipment as well as medical technology grew at an above-average rate.
As regards signaling and medical technology, the examples show that the range of leasable goods has grown immensely. When it comes to the subject of leasing, anyone only thinking of company car fleets or office photocopiers has slept through the crucial developments of recent years. These days, virtually any commodity can be leased. According to information from the Federal Association of German Leasing Companies, in March 2019, commodities were leased with a total value of 200 billion euros.
For the leasing providers, however, the booming trend of no longer needing to own everything has its downsides. The leasing business is becoming increasingly fragmented and therefore more laborious. So fragmented in fact that leasing customers are no longer paying for a fixed rental period, for example for machinery or specialist software, but only according to usage, known in the trade as "pay-per-use".
Investment in the German leasing business in billions of euros [Quelle/Source:ifo Institute for Economic Research; Federal Association of German Leasing Companies ]
Added to this are the challenges on the refinancing side. "The market for refinancing of leasing companies in Germany has tended to narrow rather than expand in recent years with the withdrawal of various refinancers. The refinancing of fragmented receivables portfolios presents challenges to the leasing companies and their backers," says Volker Kieschke. He is head of leasing finance at the Hamburg Commercial Bank.
Kieschke and his expert team therefore searched for alternative solutions to the classic refinancing business. Clear specification: the new process must be shaped in a simple, transparent and significantly more digital way for all involved, which is also close to the capital market.
It quickly became clear to the project team that there was room for improvement when it comes to simplicity and transparency, mainly in contract and project management. In recent years, this has developed into a bureaucratic nightmare for leasing companies and refinancers, mainly due to the increasing fragmentation of individual receivables.
A platform, developed by the Hamburg Commercial Bank in collaboration with its partners, is now creating a solution: the IT service provider QuantFS uses its platform to ensure that all data can be imported and processed in electronic form, and checked for correctness using defined criteria from the contractual parties. Manual intervention is only required in exceptional cases. "This guarantees a considerable reduction in outlay on all sides and creates a genuine alternative to the refinancing of fragmented leasing receivables portfolios," says Kiesche in summary.
It was and is particularly important to him that the platform is designed in a way which is close to the capital market. Established for some years, the "SmartFact platform" from the refinancers for working capital solutions in Luxembourg was therefore incorporated. The refinancing of receivables takes place through the issuance of promissory notes. "These are largely standardized to make it very easy to incorporate further investors," explains Kieschke.
Share of object groups in new leasing business 2018 [Quelle/Source: ifo Institute for Economic Research; Federal Association of German Leasing Companies]
Volker Kieschke, leasing expert at the Hamburg Commercial Bank, will be reporting on the advantages of the new platform at a round table at the 15th "STRUCTURED FINANCE" event in Stuttgart. Date: November 27, 1:45 PM to 2:45 PM. Joining him on the podium are Tim Tiedermann, managing director of the leasing company AGL Activ Service and their commercial manager Rene Gräf.