Leaseurope Index Q2 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 Q2 2020 is the thirty-eighth edition of the survey.
Most of the KPIs considerably deteriorated, except for median cost/income. Compared to Q2 2019, total new business volumes shrank by nearly -30%, reaching €20.6 billion. The portfolio of outstanding contracts expanded by 1.1% in Q2 2020, while risk weighted assets remained relatively stable with a marginal increase of 0.3%.
Aggregate pre-tax profit halved (-50.3%) in Q2 2020 compared to the same quarter of the previous year. This was largely driven by escalating loan loss provisions rather than any dramatic fall in income. As a result, weighted average profitability in Q2 2020 declined by almost one-third compared to the Q2 2019 level, from 40.6% to just 13.1%. The median profitability for the ‘typical’ company in the sample also shared a similar trend, despite at a higher level of 20.3% in the second quarter of 2020.
Both operating income and expenses showed declines of -9.3% and -11.2% respectively in Q2 2020 compared to the same period last year. Notably, it was the first time that operating expenses experienced such a sharp improvement in the history of the index. Consequently, the median cost/income ratio improved by 1.3 percentage points to reach 45.3%, whereas the weighted average cost/income ratio remained relatively unchanged at around 50% in the second half of 2020.
Loan loss provisions surged by 134.2% in Q2 2020 compared to the same period a year ago. As a result, the weighted average cost of risk significantly worsened, rising from 0.42% in Q2 2019 to 0.97% in Q2 2020. Although cost of risk was more positive when excluding outlier effects, the median ratio hit a record high in the second quarter of 2020 at 0.7%. These levels approach but are not as high as the levels experienced in 2010.
In Q2 2020, both RoA and RoE were at their lowest levels since 2010. Weighted average RoA stood at 0.7%, with a median ratio at 0.8% for the ‘typical’ leasing company.
Jochen Jehmlich, CEO Societe Generale Equipment Finance commented, “The KPIs tracked by the Leaseurope Index show that the European leasing industry was not exempt from the general downturn experienced as a result of the Covid-19 pandemic in the second quarter. At present, portfolios continue to expand despite a large drop in new business, and lessors have responded rapidly to the crisis by lowering costs and taking very conservative positions on loan loss provisions to reflect the highly uncertain economic environment. For the rest of the year, the European Commission has forecast a slow rebound in business investment due to lingering uncertainty surrounding demand and the future of UK-EU trading relations. Although this environment certainly presents additional challenges, European lessors will continue leveraging their strengths to provide much needed asset financing to facilitate business recovery, particularly for SMEs.”