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

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7

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

8

The leasing industry in Japan

• Total leasing volume in 2003 = US$ 68.8 billion

• Leasing volumes constant

• Lease penetration in Japan = 8 %

9

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

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• 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

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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)

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DIALOGUEDIALOGUE

EU Banking Experts GroupEU Banking Experts Group

EBIC – European Banking Industry CommitteeEBIC – European Banking Industry Committee

FORUMWORKINGGROUPS

FORUMWORKINGGROUPS

LeaseuropeLeaseurope

Leaseurope is member of official consultative bodies of the European Commission, namely

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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.

14

Europe = almost 45% of the global leasing market

36.7 %

44.3 %

15.5 %

0.8%

1.2%

1.5%

Source: London Financial Group Global Leasing Report 2003 + Leaseurope data

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Geographic distribution of European leasing activities (Leaseurope in 2003)

European leasing market dominated by 4 big countriesGermany + UK + France + Italy = 69% of the market

22%

17%

17%13%

11%

8%7% 5%

Germany

UK

Italy

France

Austria & CEE

Mediterranean

Benelux

Scandinavia

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2003New 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%)

European leasing market - a sound market (Leaseurope in 2003)

+10% average annual growth in the last 10 years (1990 to 2003-HP)

95 94 89 80 86 95107 119

137160

174193 199 193

234

0

50

100

150

200

250

Bill

ion

s o

f E

uro

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Graph 1a: New Leased Assets

24 Bio € HP

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

05,000

10,00015,00020,00025,00030,00035,00040,000

In billion euros

Others

Big tickets

Motorcars

Road transport vehicles

Computers andBusiness machines

Machinery andEquipment

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Equipment leases - -Analysis by type of customer (Leaseurope in 2003)

Leasing is increasingly used by all categories of customers.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000Agriculture,forestry, f ishing

Manufacturing,industry,constructionServices privatesector

Services publicsector

Consumer

Others

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Real estate leases – Analysis by type of building &

primary contract term (Leaseurope in 2003)

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

2002 2003

Others

Public services

Hotel and leisure

Office buildings

Retail outlets

Industrial buildings

0%

20%

40%

60%

80%

100%

2002 2003

> 20 years

16-20 years

8-16 years

<= 8 years

20

Leased assets in 2003(Leaseurope)

0% 20% 40% 60% 80% 100%

Germany

UK

Italy

France

Austria & CEE

Medit.

Benelux&CH

Scandinavia

Real estate

Equipment

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Penetration rate of leasing in 2003 – National & international levels (Leaseurope)Austria 12.4%

Belgium 9.8%

Switzerland 9.7%

Czech Republic 19.1%

Germany 17.2%

Denmark 7.0%

Spain 6.7%

Estonia 29.6%

France 19.2%

Finland 4.0%

Hungary 18.8%

Italy 12.9%

Netherlands 6.6%

Norway 7.0%

Portugal 11.5%

Poland 19.9%

Sweden 9.3%

Slovenia 16.6%

Slovakia 14.0%

Turkey 6.8%

UK 12.8%

Weighted Average 14.1%

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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

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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

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WHY LEASE?WHY LEASE?Source: ELA, October 4, 2004Source: ELA, October 4, 2004

Need forNeed forEfficient Efficient CapitalCapital

Rent aRent aBalance SheetBalance Sheet

Manage TaxManage TaxLiabilityLiability

Avoid Avoid TechnologicalTechnologicalObsolescenceObsolescence

Convenience /Convenience /ServiceService

Asset Asset ManagementManagement

ConserveConserveCashCash

Solutions -Solutions -StructuringStructuringKnowledgeKnowledge

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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

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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

Global ELB & EU 25 ELB - C om parison with EU C om m ission 's Se rvice s C onfide nce Indicator

35 3326

15

26

46

60 58 58

47

37

59 5854

45

0

10

20

30

40

50

60

70

J an-02

Feb-02

M ar-02

Apr-02

M ay-02

J un-02

J ul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

J an-03

Feb-03

M ar-03

Apr-03

M ay-03

J un-03

J ul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

J an-04

Feb-04

M ar-04

Apr-04

M ay-04

J un-04

J ul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

J an-05

ELB

Scale

-10

-5

0

5

10

15

EU C

onfid

ence

Indic

ator

Scale

(bas

e poin

t inde

x 200

0 = 1

00)

Global ELB EU 25 ELB EU Confidence Indicator Const ruct ion

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Leasing companies and their economic environment

European leasing companies more optimistic about their own activities than the macroeconomic environment or their domestic leasing market

Le asing C om panie s and the ir Econom ic Environm e nt

-10

0

10

20

30

40

50

60

70

80

J an. '02 Apr./May'02 Sept.'02 J an.'03 Apr./May'03 Sept.'03 J an.'04 Apr./May'04 Sept.'04 J an.'05

Macroeconomic environment Leasing sector Individual Act ivity

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Geographical analysis

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

Cluster Comparison Over Last Two Editions

50

29

61

49 49

58

7266

44

18

62

44

6660 62

51

0

10

20

30

40

50

60

70

80

Germany UK+Ireland France Italy Mediteranean Benelux+CH Austria+ EE Scandanavia

EL

B S

cale

Sep-04 Jan-05

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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

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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

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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”

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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

33

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.)

34

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)

35

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)

36

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

37

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).  

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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

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Leaseurope – 2005 onwards

Regulatory issues: A new world order

• Capital adequacy requirements or Basle II

• IFRS

Will leasing stay independent from Banking Supervision?

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Basel II: A Risk sensitive approach

•The new proposal will replace the 1988 accords

A better evaluation

of risks

Capitalallocationaccording

to encountere

d risks

Implications on return on equity

41

Basel II: Leaseurope’s aim

Objective

Ensuring that leasing business receives

sufficient attention when it comes to

defining capital adequacy ratio

Extensive knowledge(business &

academic level)

Scientific studies working group

Privileged interlocutor

with regulators

Tools

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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 level1: Physical inspection related problems2: Residual value

43

Basel II: Leaseurope’s input

• Actively participates in the consultative process

• Maintains close contacts with regulators at the European Commission and Basel Committee

44

Capital Requirements Under Basel II Will More Closely Reflect the True Level of Underlying Risk

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

LargeCorp

SME ProjectFinance

OtherRetail

Mortgage Leasing Banks Sovereign

RWA as % of Assets

Capital Requirements Change in Europe – BIS II vs. BIS I*

BIS I

Standardised

IRB Foundation

IRB Advanced

Other

Source: Mercer Oliver Wyman report (The New Rules of the Game), June 2003

45

As a High Risk-Adjusted Return Business, General Leasing Is Set to Gain From the Realignment Of Capital

• 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

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

5 10 15 20

RAROC

Vanilla Lending

Value Added Lending

Asset Finance

Revenue

Source: Mercer Oliver Wyman

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consolidated accounts annual accounts

Obligation toapply IAS/IFRS

from 2005

MS option* toapply IAS/IFRS

MS option* to apply IAS/IFRS

MS option* to apply IAS/IFRS

publiclytraded

companies

non publicly-traded

companies

EU-Regulation 2005 - IFRS

47

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

48

• Information on Leaseurope’s Website

– Information on EU regulations– Studies and position papers– Statistics– The ELB– Top 100 leasing companies– Others

49

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?

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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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Your personal invitation

Leaseurope Annual Conference

October 3-4, 2005

Cascaïs, Portugal

You are most welcome to join us.

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LEASEUROPEShaping the future of the European leasing industry

Avenue de Tervuren, 267B – 1150 BrusselsTel. +32 (0)2 778 05 60fax +32 (0)2 778 05 79e-mail: leaseurope@leaseurope.orghttp://www.leaseurope.org

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LEASEUROPEShaping the future of the European leasing industry

Alain Vervaet

Chairman of LEASEUROPECEO of ING Lease Holding