Debt: Leasing gives loans a run for their money

Peter Koh

September 29, 2006

Leasing is one of the hidden jewels of European banking. Its use by balance-sheet-constrained large private companies, credit-constrained small and medium-size enterprises and indebted public sector entities, including municipalities and local authorities, is growing rapidly. Europe is fast surpassing the US as the largest market for leases as more and more borrowers see the advantages compared with traditional loans. Peter Koh finds that banks are delighted and selling the product busily through their branch networks.

The market for leasing in Europe now eclipses that of the US as companies, consumers and the public sector increasingly favour the product over loans, much to the delight of banks.

THE POPULARITY OF leasing as an alternative to loans has grown so rapidly over the past few years in Europe that the continent has now overtaken the US as the product’s biggest market.

According to industry body Leaseurope, the volume of new leases originated in Europe in 2005 was €270 billion, up 14% on 2004.

The growing popularity of the financing method in central and eastern Europe and in the property sector have been strong contributors to this growth. Real estate leasing in 2005 grew by 25% from the previous year, accounting for €47 billion of new business volume.

Leaseurope estimates that about 16% of all investment made in the 32 countries from which its membership is drawn is now made through leasing.

It’s not just companies that are turning away from traditional lending; the public sector is doing so too.