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New leasing business shrank by almost 30% year-on-year to €20.6 billion in the second quarter of 2020, according to Leaseurope’s latest index.

The organisation, which tracks the results of 23 European lessors on a quarterly basis, said most companies’ KPIs “considerably deteriorated” with the exception of median cost/income ratio, which rose by 1.3% to 45.3% as a result of lower operating expenses.

Aggregate pre-tax profit fell by 50.3%, which was credited to escalating loan loss provisions rather than a dramatic fall in income. Weighted average profitability dropped from 40.6% in quarter two 2019 to 13.1% in 2020.

Operating income and expenses contracted by 9.3% and 11.2% respectively. Leaseurope claimed this was the first time that operating expenses had fallen so sharply since its index began (the latest is the 38th edition).

Loan loss provisions rose by 134.2%, causing the weighted average cost of risk to increase from 0.42% to 0.97%. The company claimed the cost of risk was “more positive when excluding outlier effects” but added that the median ratio “hit a record high” in the second of 0.7%, close to 2010 levels.

Return on assets of 0.7% and return on equity of 0.8% were at their lowest levels since 2010.

The portfolio of outstanding contracts increased by 1.1% and risk-weighted assets remained relatively stable, rising by 0.3%.

Jochen Jehmlich, chief executive officer at Société Générale Equipment Finance, explained: “The KPIs tracked by the Leaseurope Index show that the European leasing industry was not exempt from the general downturn experienced as a result of the Covid-19 pandemic in the second quarter.

“At present, portfolios continue to expand despite a large drop in new business, and lessors have responded rapidly to the crisis by lowering costs and taking very conservative positions on loan loss provisions to reflect the highly uncertain economic environment. For the rest of the year, the European Commission has forecast a slow rebound in business investment due to lingering uncertainty surrounding demand and the future of UK-EU trading relations.

“Although this environment certainly presents additional challenges, European lessors will continue leveraging their strengths to provide much needed asset financing to facilitate business recovery, particularly for SMEs.”

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