he first event came in the early 1990s and brought the last of the pre-globalisation UK recessions. A short period of very high interest rates followed years in which businesses and consumers had built up huge levels of debt, a toxic combination which saw many home-owners plunged into negative equity and very high levels of business failures. Banks and leasing companies saw a large increase in bad debts, often originating from companies who appeared to be financially strong before suddenly collapsing. Unsurprisingly the result was a very severe reduction in credit appetite and an inability of our industry to help in the early stages of economic recovery.
From the mid-1990s we saw a decade of solid economic growth, reducing interest rates and the leasing industry playing a full part in supporting business expansion, but then in 2008 came the second of the three events, a global financial crisis. Unlike a ‘normal’ recession, this crisis culminated in the banks having insufficient funds to support their consumer and business customers. The availability of credit significantly reduced, and, at least initially, the cost of borrowing increased. Some major leasing companies simply had no funds available and withdrew from the market, so as with the 1990s recession, the industry as a whole was in no position to support businesses as they tried to recover.
We are now living through the third event, a global health pandemic in which significant sectors of the economy have been effectively closed for prolonged periods of time. The UK Government has borrowed billions of pounds to provide some short-term relief for both individuals and businesses, but most economic forecasts suggest that certain sectors and individual businesses might never fully recover. In these circumstances of uncertainty one might expect to see the finance industry take a very cautious approach to credit. It is therefore encouraging to learn from our credit managers that they are adopting a ‘business as usual’ approach.
Demand for leasing has remained strong in most of our markets with a rapid increase in business volumes following relative inactivity during the initial period of lockdown, however for the asset finance industry to contribute fully to any economic recovery, supply of credit has to meet demand. In this respect it is good to report that our credit criteria remains unchanged and where we are seeing financial statements which reflect the difficulties certain businesses have faced during 2020, we are trying, wherever possible, to look beyond the numbers and seek additional information rather than simply decline applications for credit.
As an industry we were not in such a strong position to help businesses weather the storms of 1992 and 2008, but, with the cost of credit remaining low and a positive approach to underwriting, BNP Paribas Leasing Solutions are well placed to contribute fully to economic recovery in 2021 and beyond.
Explanation:
here is three events to help u out
