Jukka Salonen explains why the industry must embrace innovation to
Improving times do not yield
the promise of the days we knew before the crisis. For the leasing
industry it will be like sailing in waters without familiar
coordinates – challenging, but also a huge opportunity.
The main drivers for change
in our industry are recovery, the European sovereign debt crisis,
lease accounting and Basel III. Economic recovery itself is good
news and increasing volumes are placing leasing companies in a
stronger position. At the same time, competition is picking up,
putting pressure on margins and earnings. This is something the
industry can ill afford in the new environment.
In the short term, the
European debt crisis is increasing the uncertainty of recovery. In
the longer term, there is a threat to the stability of the banking
system if the countries facing difficulties are not able to
stabilise their economies and meet the repayment requirements of
foreign debt. This might decrease the overall lending capacity of
banks and leasing, as a part of the lending business, will also
Notably, thanks to
Leaseurope’s work, the new lease accounting standard setting is
proceeding in a better direction. The latest changes to exposure
draft proposals and the prolonged time schedule to completion are
all positive indications that the IASB is listening to its
constituents and will produce a simplified final
That being said, there is
still work to be done and the many changes compared to the original
exposure draft create a need for a new draft to be published for
public consultation before the standard can be finalised. What is
clear is that the introduction of the new standard, which will not
be effective before 2015 at the very earliest, will require the
leasing industry to increasingly highlight the added value of its
The biggest challenge on the
horizon is the Basel III regulation, which will fundamentally
change the financial sector. High demands for core tier 1 capital,
the short-term liquidity buffer, and long-term match funding will
create new costs for the banks and increase the amount of equity
they have to hold. Higher costs and equity will put a strain on the
banking sector’s return on equity.
All players face the same
basic issues: to ensure profitability and access to funding and
capital. Only sufficiently profitable businesses will get the
necessary equity and funding.
Profitability is driven by
the structure of earnings and by productivity improvements, and in
order to achieve this, new business models have to be invented and
open to new sources for funding and capital.
But this will not be enough.
The industry has to reach new levels of value creation in terms of
strategic alignment with its owners – be they banks, manufacturers,
or private investors.
In short, the answer from the
industry to these changes has to be innovation. Innovation in
business models, products and solutions.
There is definitely potential to achieve this and convert
the challenges to opportunities to make this era the dawn of the
new future of leasing.