Lat-Am Equipment Finance Market is Suffering from a Recent Bout of Bank Consolidation
Written by Brendan Gleeson
I’ve just listened to the first of White Clarke Group’s planned series of auto and equipment finance market webinars, which is produced jointly with Asset Finance International.
The subject was how equipment finance is faring in Latin America. Rafael Castillo-Triana of The Alta Group gave an immensely illustrative update on how each country is dealing with equipment finance – and produced some eye-openers.
Although the Latin American economies are largely thriving – and Brazil, Mexico and Columbia are becoming global first-league players – Castillo-Triana warned of structural challenges for asset lenders and lessors.
For a start, there is a marked imbalance between automotive finance on the one hand and equipment and machinery on the other. Auto finance accounted for 71% of all leasing in 2010 – compared to 21% for other equipment. There is a divergence between the type of equipment financed by lessors and the type of equipment acquired in the economy.
Alarmingly, the equipment finance industry is also suffering from a recent bout of bank consolidation where, as the banks absorb leasing companies, their leasing business model becomes subsumed within the bank.
“This,” Castillo-Triana explained, “makes the leasing operation just another additional credit product – with bankers analysing risk using the same metrics that they use for any kind of credit or secured lending – which is contrary to reality.”/p>
Since the Latin American banks then proceed to lose contact with the value of the leasing talent they have in-house, and un-encouraged leasing volumes slow down, the ‘talented’ staff leave the banks with the result that even less leasing takes place.
“When this happens, the leasing divisions of the banks eventually cease to do new business – and the leasing portfolio simply evaporates,” he said.
Castillo-Triana then goes on to predict his view of the future for Latin American asset finance – which, with caveats, is generally optimistic.
Given always, of course, that the euro-zone sorts itself out satisfactorily.
Comments are welcome below - and to hear Rafael's presentation click here.