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LEASEUROPE Shaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPE CEO of ING Lease Hol

LEASEUROPE Shaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPE CEO of ING Lease Holding. An unprecedented enlargement or a partnership for European development. A lain Vervaet Chairman of LEASEUROPE CEO of ING Lease Holding.

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LEASEUROPE Shaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPE CEO of ING Lease Hol

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  1. LEASEUROPEShaping the future of the European leasing industry Alain Vervaet Chairman of LEASEUROPECEO of ING Lease Holding

  2. An unprecedented enlargement or a partnership for European development Alain Vervaet Chairman of LEASEUROPECEO of ING Lease Holding

  3. Historic event in Europe’s history May 1st, 2004 Unprecedented enlargement • EU = 25 Member States • Moving Eastwards • 8 Central and Eastern European countries • 2 Mediterranean countries

  4. New challenges • Smooth transition from 15 to 25 Member States • Rapid economic integration in the 1990s: - Privatization programmes - Investment liberalization - Business oriented economy • EU-25 closer to Ukraine and Commonwealth of Independent States (CIS)

  5. GDP and Population in 2004 • EU-25 GDP = Euro 10.040 billion • Just higher than U.S.A GDP • More than 2.5 times higher than Japan GDP • EU-25 total population = 455 million people

  6. The leasing industry in the US • Largest single leasing market in the world • New business in 2003 = US$ 224 billion (30% of total business investment in equipment) • Over 5 years: - 3 to 5 million more jobs - Between $100 billion to $300 billion more real GDP

  7. The leasing industry in Japan • Total leasing volume in 2003 = US$ 68.8 billion • Leasing volumes constant • Lease penetration in Japan = 8 %

  8. The leasing industry in Europe LEASEUROPE,the European Federation of Leasing Company Associations 26 national associations • 1350 leasing companies • 193 billion € new investments in 2003 (217 billion € incl. hire purchase for Finl. & UK) • Estimate for 2004 = 234 billion € (incl. Hire purchase for Finl. & UK) • 470 billion € outstandings (497 billion € incl. hire purchase for Finl. & UK) • Estimate for 2004 = 546 billion € (incl. Hire purchase for Finl. & UK) • 48,000 jobs • Financing around 15% of the gross fixed capital formation in Europe • Members represent 90% of the leasing industry in Europe

  9. Decisions of the Federation are taken by: • Board = representatives of 8 clusters • General Assembly • Committees and Working Groups • Accounting & Taxation Affairs Committee • Working Group Basel II • Legal Affairs Committee • Statistics and Marketing Committee • CEE Countries Working Group • European Auto Forum

  10. Discussion partners of LEASEUROPE • The EU Commission • The European Parliament • IASB • The Basel Committee • The other Federations of the bank and finance industry located in Brussels (e.g. Eurofinas) • Sister Federations at international level • ELA (USA) • CFLA (Canada) • AELA (Australia)

  11. Leaseurope is member of official consultative bodies of the European Commission, namely EU Banking Experts Group FORUM WORKING GROUPS Leaseurope DIALOGUE EBIC – European Banking Industry Committee

  12. LEASEUROPE’s mission is to: • represent the interests of the leasing industry in Europe • promote and lobby for acceptance and general use of leasing • provide information for • members • partners • public at large • conduct research and economic studies The Board decides about priorities, which are reflected in the work of Committees and Working Groups.

  13. 44.3 % Europe = almost 45% of the global leasing market 36.7 % 15.5 % 1.2% 0.8% 1.5% Source: London Financial Group Global Leasing Report 2003 + Leaseurope data

  14. Geographic distribution of European leasing activities (Leaseurope in 2003) European leasing market dominated by 4 big countriesGermany + UK + France + Italy = 69% of the market

  15. 24 Bio € HP European leasing market - a sound market (Leaseurope in 2003) +10% average annual growth in the last 10 years (1990 to 2003-HP) 2003 New investments: 193 b€Outstandings: 478 b€ 2003 (incl. hire purchase in Finland and the UK) New investments: 217 b€Outstandings: 497 b€ 2004 (estimates + H-P) New investments: 234 b€ (+ 7.6%)Outstandings: 546 b€ (+ 9.7%)

  16. Equipment leases – Analysis by type of asset per cluster (Leaseurope in 2003)

  17. Equipment leases - -Analysis by type of customer (Leaseurope in 2003) Leasing is increasingly used by all categories of customers.

  18. Real estate leases – Analysis by type of building & primary contract term (Leaseurope in 2003)

  19. Leased assets in 2003(Leaseurope)

  20. Penetration rate of leasing in 2003 – National & international levels(Leaseurope)

  21. Penetration rate of leasing at national and European levels (Leaseurope) • 2003: 14.1 % of European assets financed by leasing • Leasing exceeds 40% of external financing of capital goods

  22. Summary: • European leasing market (Leaseurope) • Solid growth over the last 10 years (+ 10%) • Car leasing dominates • 4 major countries = 69% of the market • Leasing • Market share • Accessible source of financing • Important employer (48,000 persons) • Major player in SME’s development and growth

  23. WHY LEASE? Source: ELA, October 4, 2004 Avoid Technological Obsolescence Convenience / Service Need for Efficient Capital Solutions - Structuring Knowledge Conserve Cash Rent a Balance Sheet Asset Management Manage Tax Liability

  24. ELB - The European Leasing Barometer • Indicator of the confidence level of European leasing companies in the economic activity and expectations for the coming months • Some 101 leasing companies (Leaseurope) in 24 countries • Survey three times a year

  25. European Leasing Barometer (ELB)Jan/Feb 2005http://www.leaseurope.org/elb/EuropeanLeasingBarometer.html European leasing companies less optimistic in the economy and its evolution for the next three months

  26. Leasing companies and their economic environment European leasing companies more optimistic about their own activities than the macroeconomic environment or their domestic leasing market

  27. Geographical analysis UK & Scandinavia most pessimistic (-38% & -23% respectively) while France, Benelux, Switzerland and Mediterranean countries have a more favorable outlook.

  28. ELB – the European leasing barometer Conclusions: • Change in methodology resulting in more sensitive measure • After period of high expectations in 2004, confidence has fallen to reach levels similar to those in Sept 2003 • When ELB is broken down into its components, most pessimistic expectations are for the economic situation in the respondent’s home country • ELB and EC’s services confidence indicator follow similar trend (long term interpretation) • Next ELB survey: April/May 2005

  29. Leaseurope’s Top 100 ranking (next ranking June 2004) • Since 2001 • Annual survey (on voluntary basis) • Groups and individual companies • Top 100 leasing companies in Europe • In 2003, overall production = € 122.3 billion • Top 20 companies = 65% of total value of new contracts

  30. Leaseurope – 2005 onwards Main legal issues: CCD & AML Consumer Credit Directive • First proposal in September 2002 • Ongoing work with the Legal Affairs Committee • Last available document = amended proposal including EU Commission endorsement of EP 1st Reading April 2004 - Art. 3-2-b : confirmed exclusion of “hiring agreements except where they provide for the title to pass to the hirer eventually” - Art.3-2-ba : exclusion of “leasing agreements which do not create any obligation to purchase the object of the agreement”

  31. Main legal issues: CCD & AML Consumer Credit Directive (con’d) • EBIC meets EU Commission: March 14, 2005 • Release of new official proposal by EU Commission: end of April • 1st EU Council Experts Group meeting: May 25, 2005

  32. Main legal issues: CCD & AML Consumer Credit Directive (con’d) Scope • If not included in the scope of the CCD left to EU states to regulate" (e.g. joint & several liability.) • Are excluded: leasing operations (sic); credits with amounts over Euro 100,000; mortgages or credits secured by mortgages (a.o.)

  33. Main legal issues: CCD & AML Consumer Credit Directive (con’d) 3 regimes: • Full harmonisation(for pre-contractual and contractual information, APRC) • Mutual recognition(for credit intermediaries, responsible lending and duty to advice, all provisions linked to contractual  rules like right of withdrawal)      • Transitory regime: 6 years towards mutual recognition (for early repayments and information on overrunnings)

  34. Main legal issues: CCD & AML Anti-Money Laundering 1991: 1st Anti-Money Laundering (AML) Directive (limited to drugs offences; applied only to financial sector) 2001: 2rd AML June 30 2004: 3rd proposal for AML, extending scope of previous directives to terrorist financing (reflects recommendations of the OECD-based Financial Action Task Force against ML)

  35. Main legal issues: CCD & AML Anti-Money Laundering February 14, 2005: Leaseurope (EBIC) started lobby action Position Paper: • Definition of  beneficial owner = entity having control of the customer (holding at least 25%, instead of 10 %, of  shares • Definition of politically exposed persons = restricted to third countries (not EU) having prominent public functions • Request for "full harmonisation" of provisions (instead of minimal) for competition reasons

  36. Main legal issues: CCD & AML Anti-Money Laundering (con’d) At stake = Third parties (intermediaries) working with lease/finance companies (agency relationship) due to: • large amount of work connected with typical "outsourcing" agreements; • if term  "outsourcing" maintained = problem for credit/lease distribution at point of sale or via Internet; • third parties "synonymous" with institution concerning "customer due diligence"/ customer identification and verification requirements only (third parties should not  be forced to comply with any requirement of directive that institution must meet).  

  37. Main legal issues: CCD & AML Anti-Money Laundering (con’d) • March 7, 2005: EBIC tabled amendments with EP LIBE Committee (MEP Nassauer = Rapporteur) • April 25-26: scheduled vote in EP LIBE Committee • May: vote in plenary • June 7: discussion in ECOFIN Council

  38. Leaseurope – 2005 onwards Regulatory issues: A new world order • Capital adequacy requirements or Basle II • IFRS Will leasing stay independent from Banking Supervision?

  39. Basel II: A Risk sensitive approach • The new proposal will replace the 1988 accords A better evaluation of risks Capital allocation according to encountered risks Implications on return on equity

  40. Extensive knowledge(business & academic level) • Scientific studies • working group Privileged interlocutor with regulators Basel II: Leaseurope’s aim Objective Ensuring that leasing business receives sufficient attention when it comes to defining capital adequacy ratio Tools

  41. Basel II: Leaseurope’s input • Discussion forum within the industry • List the challenges of the leasing industry with identified solutions • Identify best practices • Supported with further research • Bargaining power at the European level 1: Physical inspection related problems 2: Residual value

  42. Basel II: Leaseurope’s input • Actively participates in the consultative process • Maintains close contacts with regulators at the European Commission and Basel Committee

  43. BIS I Standardised IRB Foundation IRB Advanced Capital Requirements Under Basel II Will More Closely Reflect the True Level of Underlying Risk Capital Requirements Change in Europe – BIS II vs. BIS I* RWA as % of Assets LargeCorp ProjectFinance Other Retail SME Mortgage Leasing Banks Sovereign Other Source: Mercer Oliver Wyman report (The New Rules of the Game), June 2003

  44. Lower average loss rates than vanilla lending due to structured repayments Less customer transparency and lack of ‘product’ standardisation allows for higher margins Greater collateral control where funding linked to specific assets On average RAROC in value-added lending and asset finance are amongst the highest available in wholesale banking where balance sheet leverage is involved Pressure on mid-market lending due to higher capital charges under Basel II RAROC Asset Finance Value Added Lending Vanilla Lending Revenue As a High Risk-Adjusted Return Business, General Leasing Is Set to Gain From the Realignment Of Capital Source: Mercer Oliver Wyman

  45. EU-Regulation 2005 - IFRS consolidated accounts annual accounts publiclytradedcompanies Obligation toapply IAS/IFRSfrom 2005 MS option* to apply IAS/IFRS non publicly-tradedcompanies MS option* to apply IAS/IFRS MS option* to apply IAS/IFRS

  46. Lease Accounting: Still a Debate … • Dissatisfaction with economic ownership concept (on- or off-balance of assets and liabilites) • New Approach implies fundamental changes to accounting concepts

  47. Information on Leaseurope’s Website • Information on EU regulations • Studies and position papers • Statistics • The ELB • Top 100 leasing companies • Others

  48. Some trends and questions in the industry • M&A lead to a vast network controlled by some 15 leasing families having substantial market share in nearly every European country • Captives, main banks and US controlled companies taking the lead •  Pan European actors increasing the importance of cross border leasing?

  49. Looking Eastwards • Leasing has deep roots in Europe • Leaseurope has special links with Central and Eastern European countries • Special Working Group for Leasing Companies in Central and Eastern Europe • Seminar for leasing managers • Next Seminar, in Belgrade April 26-27, 2005

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