24 June 2009

Bank of England proposals to accept leases as part of “quantitative easing” miss the mark

Vast majority of leases to businesses would be excluded

Bank of England proposals to start buying debt backed by equipment leases as part of its “quantitative easing” programme miss the mark says Syscap, one of the UK’s leading independent lease finance providers.

The Bank of England’s purchases of commercial paper backed by leases will be restricted to debt that has a maturity of nine months or less.

Philip White, Chief Executive of Syscap, explains: “The average equipment lease length is over three years so the vast majority of leases are going to be excluded from this arrangement.”

“By the time a lease has been reduced to just nine months, virtually all of the risk has been washed out of it. Whilst you can understand the Bank of England’s caution its determination just to take on the smallest slice of the least risky leases is just too tentative– it isn’t going to turn on the tap.”

“If the Bank of England can relax some of these restrictions then this long overdue measure could work.”

“The leasing market is absolutely key to the funding of SMEs. Up until now the Government’s efforts to fix the credit crisis have completely ignored leasing, so it is critical that the Bank of England doesn’t fumble its first move in this area.

The Bank of England’s purchases of commercial paper backed by equipment leases will also be restricted to paper that has a credit rating from two credit rating agencies each of A-1 or above.

Data from the FLA (Finance & Leasing Association) shows that the £5.5 billion in asset finance raised in the UK in Q1 2009 was 28% less than in Q1 2008.

Adds Philip White: “Some will worry that this initiative is more geared towards getting Alistair Darling off the Bank of England’s back rather than actually trying to achieve something.”

See coverage of this press release below:

Leasing World