Asset finance companies lose lending share
19 October 2007 7:00am Finance companies are losing market share in their biggest market segment, business lending, as the banks make an aggressive push for more SME and middle market business. According to KPMG’s 2006/07 survey of finance companies, released yesterday, finance company share of business lending (including finance lease receivables) was 9.9 per cent at the end of March this year. Share was down from 10.4 per cent in 2006 and 11.2 per cent in 2005.
KPMG financial services partner Martin McGrath said: “A major challenge for the finance company sector is the increasing focus of other players in the industry, including the major banks, on the business sector as the engine for growth.” Business lending makes up 59 per cent of finance company lending, with lease receivables making up another 13 per cent. Lending to households makes up the balance (28 per cent).
KPMG’s survey is based on the financial reports of eight of the largest finance companies – Esanda, Capital Finance, Toyota, CBFC, BMW, Orix, Fuji Xerox and RACV. This means plenty of supplier-owned companies, many development finance companies and the largest finance company in the sector, GE Capital, are not covered by the survey.
While the selected finance companies are struggling to protect their patch, they are constrained from taking aggressive competitive action by their low return on equity. Average ROE (calculated using average net assets) fell from 13.7 percent in 2006 to 12.1 per cent in the year to March. The average for the banks during the same period was 21.5 per cent. McGrath said there were a couple of factors depressing finance company ROE.