Leaseurope Index Q3 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 Q3 2020 is the thirty-ninth edition of the survey.
The results of Q3 2020 show that, with the exception of cost/income, KPIs worsened compared to Q3 2019. However, they show significant recovery compared to the lows seen in Q2 2020 due to the effect of national Covid-19 lockdowns. Compared to Q3 2019, total new business volumes reported by the sample of firms declined by -10.7%, reaching €25.4 billion. The portfolio of outstanding contracts remained relatively stable with a marginal decrease of -0.5% in Q3 2020, while risk-weighted assets shrank by -2.8%.
Aggregate pre-tax profit fell by -14.0% in Q3 2020 compared to the same quarter of last year, driven by loan loss provision escalation. Consequently, weighted average profitability in Q3 2020 declined by 9.7 percentage points compared to the Q3 2019 level, from 40.9% to 31.2%. The median profitability for the ‘typical’ company in the sample also exhibited a similar trend, although at a higher level of 34.9% in this year’s third quarter. Looking at developments over 2020, profitability has recovered from the drop in Q2 and is more similar to the levels seen in Q1.
Both operating income and expenses experienced declines of -1.2% and -5.0% respectively in Q3 2020 compared to the same period last year. As a result of the larger cost reduction, both weighted average and median cost/income ratios improved by 0.6 and 2.7 percentage points to reach 48.5% and 45.4% respectively in the third quarter of 2020.
Loan loss provisions escalated by 82.3% in Q3 2020 compared to the same period a year ago. This resulted in the deterioration of weighted average cost of risk, rising to 0.62% in Q3 2020 from 0.34% in Q3 2019. When excluding outlier effects, the median ratio stood at 0.49% in Q3 2020 after the unprecedented high level of 0.70% in Q2 2020. This quarter was however, a marked improvement on Q2 2020, with provisions returning to the levels seen at the beginning of the year.
In the third quarter of 2020, both RoA and RoE improved considerably compared to their lowest levels in Q2 2020. Weighted average RoA was 1.3%, with a median ratio at 1.0% for the ‘typical’ leasing company.
Robert Gordon, CEO of Hitachi Capital UK commented,
“Despite the negative impacts of the Covid-19 pandemic on the KPIs tracked by the Leaseurope Index in the second quarter, the third quarter results indicate the European leasing industry had started to recover, albeit at a lower level compared to the same period last year. European lessors have managed to stabilize their portfolios and continuously lower operating costs. However, the highly uncertain economic environment has continued to be reflected in the recognition of higher provisioning for credit losses by European lessors. In 2020 overall, the European Commission predicts that business investment will have fallen, but marginal growth is expected in 2021. The impact of second and possibly third waves of Covid-19 across Europe and the potential rollout of vaccines in 2021 make the future difficult to predict or navigate. However, the need for leasing as a funder of business investment remains clear and we stand ready to assist European firms, large and small, through their recovery.”