Equipment leasing companies are entering 2018 in good financial shape with strong balance sheets, modest leverage and adequate liquidity.  Asset quality will likely weaken somewhat during the year and residual values will be negatively pressured in several asset classes.  The Alta Group expects continued growth in equipment and software volumes aided by strong business confidence, relatively low interest rates, good credit availability and the resumption of positive corporate capex growth particularly in the hardware and software sectors and, to a lesser extent, healthcare and transportation.  Despite these positive trends, there are also some economic concerns that bear watching. With the Dow Jones Industrial Average breaking a record 25,000, GDP growing faster than most anticipated and unemployment continuing to decline (approaching full employment), there is real risk that the economy could overheat and trigger a recession longer term.

Valerie L. Gerard
Managing Director and
Practice Leader
Management Consulting & Vendor/Captive Finance

There are three key trends that we’re anticipating for the year.  (1) Equipment-based securitization issuance should be in the $30-35 billion range, consistent with its strong 2017 showing of roughly $32 billion in issuance across a variety of asset classes.  However, passage of the recent tax reform bill could have a dampening effect on equipment securitizations due to the inability of lease payments to offset interest expense.  (2) Fintechs will play an increasingly important role in equipment leasing not only as a market disruptor but also a catalyst for improved market efficiency.  (3) Managed Solutions (also known as Managed Services or “x”-as-a-service) are becoming more critical for captives across a variety of industries as they are seeing the need for holistic customized programs that often involve multiple funders. Expect to see significant movement in this category throughout the year.

Here are a few sector predictions for 2018:

  • Aircraft leasing is poised to continue its resurgence as overall market conditions support strong growth; lease penetration rates are at about 40% and should remain there.
  • Railcar leasing growth should improve in 2018 as stronger rail traffic reflects the economy’s momentum; cars in storage are now down by 40% from their 2009 peak and tank cars remain out of favor due to regulatory concerns.
  • Continued strong residential construction activity in the next 12 months should fuel additional demand for financing of new and used construction equipment and, in particular, construction equipment rental activity.
  • Commercial truck leasing should benefit from a strong construction market and demand for fuel-efficient trucks, which is why this sector could show some growth in 2018. Expect to see the strongest demand in heavy-duty trucks in the first half of the year.
  • Medical equipment leasing is showing encouraging signs of recovery, particularly around diagnostic medical equipment – about 45% of the overall medical equipment leasing market – as hospitals and diagnostic centers remain attracted to the tax-benefits and flexibility of leasing.
  • The leasing of mining, oil and gas equipment will continue to benefit in the near-term from high demand globally and a growing hydraulic fracturing sector coupled with pressures to reduce costs.
  • Agriculture leasing and financing will likely see steady growth into 2018 although some expect an uptick in farmers returning older equipment, which may weaken used equipment prices.

Europe, the Middle East and Africa

Ian Robertson
Practice Leader Global Asset Management
Invigors EMEA

With the exception of the UK where the Brexit topic continues to dominate at least the domestic headlines, there is a growing sense of cautious optimism in continental Europe.  Business confidence and economic growth are returning and there is a sense of greater political stability than in recent years.

From a macro perspective, this is likely to result in stable revenue growth and continued low risk loss provisions.  Financing margins already under pressure in 2017 are expected to continue to be pressurized in the coming year.  This is expected to lead to increasing focus on value proposition development as well as greater attention on non-interest income generation.

This year is also likely to see increased focus on cost management, either through the exploitation of proven technologies such as workflow management or through newer technologies such as service bots and artificial intelligence.  Building scale through further market consolidation and centralization of activity is also anticipated.

As suggested in last year’s review, 2018 will continue to see businesses focusing on exploiting data from ever “smarter assets.”  These information flows are providing the fuel to drive innovative solutions, and platform providers and service providers are emerging to facilitate the managed solutions and flexible financial products that clients are demanding.

This focus on outcomes is increasingly important.  As circular economic thinking continues to gather traction, 2018 is likely to see further progress on addressing a client’s “state of need” rather than the historical focus of supplying “state-of-the-art” equipment.  The most successful lessors will be those who increase their understanding of client needs through data-led consultative selling, creating higher margins and driving higher customer retention and satisfaction.

In addition to exploiting the data from so-called smart assets, service providers and leading lessors will increasingly seek to exploit and integrate external data sources to create competitive advantage.  External service providers with a deep understanding of asset values and their geographic variances are already planning to offer data services that provide greater confidence around future equipment values as well as help dealers, financiers and vendors more effectively source and remarket equipment.

With all the hype around digitalization, disruptive technologies and fintech, 2018 will continue to see the asset finance industry evolve and embrace the available technologies.  This will likely lead to increasingly frictionless solutions in the SME space, which may well threaten some incumbents by shrinking their available addressable market.

With so much technological opportunity, 2018 is likely to see the more agile and innovative players distancing themselves from their competition.

Latin America and Emerging Markets 

Rafael Castillo-Triana
The Alta Group Latin American Region

This year in Latin America and Emerging Markets we can expect an overall deceleration of growth, enhanced risk perception overriding rewards expectations, and a geopolitical roller coaster.

Growth deceleration will be driven by a combination of political events and regulatory challenges. In Latin America, elections in three of the four largest economies (Mexico, Brazil and Colombia) will lead to postponed investment plans and reduced demand for capital goods. That and the importation of regulatory changes through Basel III and IV and IFRS-9, IFRS-15, and IFRS-16 will create “analysis-paralysis” among the big players (i.e., bank lessors).

In the Middle East, the increased tensions between Saudi Arabia and Iran, Israel and the Arab League, and within the Gulf Cooperation Council, will decrease demand for investment. The new implementation of value added tax will also drive business hesitation. Africa, by contrast, will grow better and faster because China is fueling its economic growth.

In Emerging Markets, and notably in Latin America, an enhanced perception of risk will slow the growth pace of the asset-based financing industry. The same above-mentioned accounting changes and the actions of Central Bank and other bank supervisors are creating an extremely prudent reaction in the private sector. Adding to this, the economic policy of the Federal Reserve system of the United States marks the end of cheap and abundant liquidity. 2018 will start showing less access to liquidity and higher costs of funds for lessors and asset-based lenders.

Finally, geopolitics also creates challenges. Since the start of the Trump administration in the US and Brexit was voted in the UK, most Emerging Markets have been expecting further restrictions in trade. For them, peace and stability seem far from secure.


Hugh Swandel
Senior Managing Director
The Alta Group Canada

Canadian 2018 expectations are uncertain. The Canadian commercial equipment finance industry has been experiencing a long cycle of low and stable delinquency numbers, nominal charge offs, and decent economic growth. The positive atmosphere is tempered by concerns about a number of micro and macro factors.

Economic growth has been healthy in Canada, with 2017 posting a growth rate of 3.1%. This is particularly positive news considering the negative impact of the steep decline in global oil prices, the continuing weak demand for Canadian oil, and transportation issues hampering delivery that further increase Canadian oil inventories. The oil sector has adjusted to expected longer term lower oil prices but the consequence is a smaller, leaner oil industry having a corresponding lower impact on the Canadian economy.

Much of the economic growth in Canada has come from consumers who have borrowed heavily at low interest rates and spent the borrowed funds on consumer goods and, in many cases, larger homes. Wage growth has not kept pace with increased consumer spending and consumer debt has reached all-time highs.  Recent and projected interest rate hikes will act to reduce disposable income and slow the economy. Canada has adopted new mortgage rules that will drastically reduce the borrowing power of potential home buyers. The mortgage rules are intended to reduce speculation and slow the rapid increase in housing prices in certain regions of Canada. It is expected that an additional consequence of the new mortgage rules will be a precipitous drop in housing sale prices and lower housing starts. These domestic issues have considerable potential to slow Canadian economic growth but it is the uncertainty over the impact of American government decisions that could compound weak domestic spending.

The United States is Canada’s single largest trading partner and actions by the US government have the potential to significantly impact Canada. From the Canadian perspective President Trump has demonstrated aggressive protectionist positions including countervailing duties on key Canadian exports such as commercial jets and softwood lumber. He has also stated his belief that the North American Free Trade Agreement is unfair to the United States and must be aggressively renegotiated. The uncertainty in the trade relationship with the United States will cause reduced confidence, which generally leads to lower economic investment.  The US has also announced significant corporate tax rate decreases that appear to reduce US corporate tax rates below Canadian rates. The impact of the discrepancy in tax rates is unknown but US investment into Canada may be reduced.

In addition to the macro issues impacting the economic prospects for Canada in 2018, there are several industry retirements that will cause changes in leadership at multiple equipment finance companies, all of them having significant market share. Several CEOs have stated their intention to retire in 2018 and this will result in new untested leaders at the helm of major industry enterprises. There will be challenges for Canadian industry leadership as continuing margin compression, expanded credit appetites, and a long cycle of low delinquency all indicate the end of a positive cycle.

The New Year in Canada is filled with considerable uncertainty, which makes predicting performance difficult. At its best this will be a low growth year for equipment finance companies but this may also be the year that a positive cycle ends and the industry must work through higher defaults and delinquencies.

Asia-Pacific Region

Adrian Pang
The Alta Group Asia Pacific Region

According to Asia Development Bank, the 2018 outlook is positive for the developing economies of East Asia and the Pacific.  We can expect stronger growth in developed economies, a moderate recovery in commodity prices, and a strengthening of global trade growth. These favorable external factors will support expansion of the developing economies of East Asia and Pacific by an estimated 6.2% in 2018. There should be even stronger growth in China, at 6.7%, the same pace as in 2016.

However, the penetration rate of equipment leasing is relatively low in Asia Pacific (APAC) compared with developed countries in other regions. We believe opportunities for future industry development will come from improved regulation and government support, and stronger demand for leasing driven by industrial upgrades of products and technology. That said, US interest rate hikes could negatively affect the overall economy in APAC and demand for equipment.