Leaseurope Index Q1 2020
The Leaseurope Index is a unique survey that tracks key performance indicators of a sample of 23 European lessors on a quarterly basis. This Q1 2020 is the thirty-seventh edition of the survey.
The results of the Q1 2020 Index do reflect the impact of the developing Covid-19 crisis across Europe, with many countries entering lockdown during March. The impact is mostly limited to the end of the quarter, therefore deteriorating KPIs are modest, with the exception of loan loss provisions rising significantly. All weighted average ratios and median ratios have deteriorated in Q1 2020 compared to Q1 2019, with the exception of median cost/income remaining stable.
New business volumes remained relatively stable in Q1 2020 compared to the same period a year ago, with a marginal decrease of -0.4%. The portfolio of outstanding contracts expanded by 5.2% in Q1 2020 on the back of strong new business in previous quarters, while risk weighted assets grew by a lower amount of 2.6%.
Aggregate pre-tax profit contracted by over a quarter (-26%) in relation to Q1 2019 as a result of escalating provisions. Therefore, weighted average profitability also decreasing, reaching 32.4% compared to the level of 40.9% in Q1 2019. The median profitability ratio (less susceptible to outlier values and more indicative of the ‘typical’ company) also exhibited a downward trend in Q1 2020, although the level is slightly higher at 34.5%.
Operating income decreased by -2.7% in the first quarter of 2020 compared to the same period a year ago. Due to the simultaneous increase of 2.2% in operating expenses, this resulted in the weighted average cost/income ratio rising to 50.6% at the beginning of 2020, which was 2.2 percentage points higher than the full year 2019 average. When excluding outlier effects, the median cost/income ratio is more positive with a slight improvement of 0.4 percentage points to reach 48.1% in Q1 this year.
Loan loss provisions increased substantially in Q1 2020, rising by 78.9% compared to the same period a year ago. As a result, the weighted average cost of risk deteriorated, almost doubling to 0.6% in Q1 2020 from 0.35% in Q1 2019. In terms of median ratio, cost of risk reached 0.52% in Q1 2020, which was the highest level observed since 2014.
The levels of both RoA and RoE were lower in Q1 2020 compared to Q1 2019. Weighted average RoA stood at 1.1% in Q1 2020, with the median ratio at 1.0% for the ‘typical’ leasing company. A similar trend was observed for RoE with an average of 15.5% and median of 16.2% in Q1 2020.
Andy Hart, CEO Investec Asset Finance commented, “The first quarter of this year shows a subdued KPI performance due to the disruption of the Covid-19 pandemic, in spite of new business volumes remaining healthy and portfolios expanding. Despite a relatively modest impact on financials like income and good cost/income control, the highly uncertain economic environment has been reflected in escalating loan loss provisions. Going forward, the European Commission has forecasted that business investment this year will experience a fall but is predicting a bounce back once the situation stabilises with the help of accommodative monetary policy. In these turbulent times, it is more important than ever to continue supporting businesses, particularly SMEs, to adapt and recover from the crisis. While lessors are also adapting themselves, the unique situation presents business opportunities for lessors to provide their services in new and beneficial ways.”