Leasing Life - 16 October 2009
Leasing World - 15 October 2009

Statistics from the Bank of England suggest it has not yet invested a single penny of the £175 billion economic stimulus package, designed in part to support the leasing market, despite announcing the programme back in July 2009, according to Philip White, CEO of Syscap.

White says, “The hope was that the Bank of England was finally announcing support for leasing, which would help SMEs fund the investments they need to start growing again. These figures suggest otherwise. It does pose the question if the programme is ready yet, and if it is why they haven’t started the purchases.”

The Government announced in July that as part of their Quantitative Easing programme they would start buying secured commercial paper, which could be backed by equipment leases.

SMEs account for a large proportion of leasing volume normally, so could have been big beneficiaries of the Bank’s programme. In turn, the extra financing could have helped the economy, and created extra jobs as SMEs are the country’s largest employer. 

Syscap raised doubts over the Bank of England’s scheme earlier this year when the initial proposals were published, as the Bank had decided to buy commercial paper backed by equipment leases only up to a maximum maturity of nine months. But what did this mean, leases usually run from two years or longer, did the Bank mean to only finance leases with just nine months left to run?

White explains, “The average equipment lease length is over three years. This means the majority of lease backed securities would be excluded from the scheme. Once leases have run down to nine months the risk is very significantly reduced.”
 The Bank of England’s ultra cautious behaviour may have raised questions over how seriously the Bank takes the issue of leasing within the wider context of financing the UK economy.

White asks, “What is the point of the Bank of England announcing it is extending Quantitative Easing to lease-backed securities, and then not buying them? The Bank of England’s excessively tight restrictions on what paper they will buy should be relaxed as a matter of urgency.”

Syscap also reminds the leasing community that the Government has already chosen to exclude leasing from their Enterprise Finance Guarantee scheme, despite extending the scheme to cover invoice discounting at the beginning of October.

White concludes, “Businesses fund the vast bulk of their capital investment through leases so it makes little sense to exclude leasing from the Enterprise Finance Guarantee scheme. If the Government could start helping SMEs fund capital investment through leasing the chances of their stimulus schemes having a lasting success would be significantly improved.”

According to statistics from the Finance & Leasing Association, the total amount of new UK business asset finance deals in the 12 months to July 2009 fell to £23 billion, 23 percent down on the previous year.