CAR LEASING
'Decision to turn down hospitality worker applicants is unrelated to UK lockdown'
In a move branded as unfair, Hitachi Capital Vehicle Solutions has announced it will not process applications for vehicle financing from individuals working in the hospitality sector. Hannah Wright reports.
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The decision, announced by Hitachi to its brokers and dealers this week, comes on the eve the UK going into Covid-19 lockdown on 5 November for a month including the mandated closure of hospitality businesses across the country.
The sector has been one of the worst affected by Covid-19, with SMEs losing an average of 54% of their monthly business income.
Citing consumer protection as the rationale behind its decision, Hitachi said the move was unrelated to the Government’s announcement of a second national lockdown.
In a statement, the vehicle leasing provider said the decision was made “in order to protect individuals in this sector from being potentially declined, and therefore putting customers in a situation that could impact their credit rating.”
Chris Tubbs, head of sales at Hitachi Capital Vehicle Solutions, said: “This decision was taken weeks ago, in the context of rising cases and the likelihood that certain parts of the economy were going to get hit again”
The restrictions will only affect 2% of its applications. Given the small quantity, the firm opted for a “standard message,” said Tubbs.
He added: “We’re very transparent with our brokers, so that they can be as informed as they can with their own customers, and make sure they’re marrying the right finance providers to the right customer.
“The approval rate for the last couple of months has been very low. We’ve been doing it by a case-by-case basis since March, but it’s not easy to tell how some of these businesses have been affected by COVID-19. It has ended up causing more problems than it solves as we try to uncover how their business has been affected and whether it meets our lending criteria or not.”
Tubbs said the restrictions will be eased “as soon as we see that the affordability will be there”. Until then, the measures are “under constant review”.
Discriminatory?
However, the decision has come in for criticism for being discriminatory.
A broker at UK Car Finance, Jacob Carr, expressed surprise at the decision by Hitachi Capital Vehicle Solutions.
“Of all the finance companies that I deal with, and have dealt with in the past, I’ve never heard of this. Putting a blanket over a full industry is mental. They should still be treating it on a case-by-case basis. If you have an applicant that runs a successful chain of hotels and has a strong, stable income. Is he or she just declined?”
Referring to the finance companies that Carr partners with, he continued: “All of the finance companies that I work with do everything on a case-by-case basis. I don’t understand how a company can put a blanket ban on an industry?”
When asked whether other vehicle financing companies will follow Hitachi’s lead, Carr responded: “I don’t think other companies will follow suit. Finance companies are all about fairness in regards to their criteria. This is not fair.”
Hitachi Capital Vehicle Solutions is a trading name of Hitachi Capital (UK) Plc.
Close Brothers
Fitch said the fallout from the pandemic “has heightened risks to the group given its above-average exposure to SME lending through asset and invoice finance, to retail customers potentially affected by employment disruptions in motor finance, and to property lending that will suffer delays in completion and sales.”
It said the ratings of Close Brothers Group and Close Brothers Limited “reflect a strong record of performance through economic cycles, which has historically compensated their appetite for higher-risk lending” but added that in the current crisis, “we expect pressure on earnings through rising credit impairments and lower volumes.”
Investec Bank
Fitch said its action on Investec Bank plc (IBP) reflects the fallout from the pandemic crisis “represents a near-term risk to its ratings”.
It said: “The risks stem from the bank’s above-average exposure (as a proportion of gross loans) to sectors we consider as particularly vulnerable to disruption, such as small-ticket asset finance, aviation finance, corporate and acquisition finance.”
Metro Bank
The rating action taken by Fitch reflects heightened challenges to Metro Bank’s business model, earnings and ability to deliver its strategy, which the pandemic has added to.
It said: “The coronavirus disruptions make execution on Metro Bank’s strategy more difficult in the near-term because of weaker prospects for growth, lower interest rates, and slower demand for loans.
“The bank has been undergoing significant organisational changes, and its earnings were expected to be depressed by restructuring charges and a slowdown in lending.
“The pandemic also poses an operational challenge for Metro Bank given its small size, staff capacity and management turnover.
“Metro Bank’s earnings are very weak (£53m operating loss in 2019, excluding the impairment of tangible and intangible assets).
“Fitch expects that a return to profitability will be made more difficult by the coronavirus disruptions. Lower lending volumes, interest rates and transaction fees, and larger credit losses (from small amounts) will weigh on the 2020 loss.”
Paragon Bank
Fitch said Paragon had “a good record in maintaining sound asset quality and profitability, but we expect its businesses, particularly its SME and development finance business, but also buy-to-let (BTL) mortgage lending, to be at risk from asset non-performance and reduced profitability in the downturn.
“We also believe that funding growth at Paragon Bank will be harder to achieve, given possible pressures on saving rates if unemployment increases, and that the bank will find it harder to execute its strategy.”
The Co-op Bank
Fitch said the downgrades of the Co-operative Bank “reflect our view that the economic disruption in the UK poses a material risk to the bank’s capitalisation and earnings, as well as to the stability of the business model and to management’s ability to execute on its strategy to grow revenue and return to profitability, relative to when we last reviewed the ratings.”
“The bank enters the economic downturn from a position of relative weakness given its structurally loss-making profile. The bank is vulnerable to greater-than-expected losses and continues to face challenges in its ability to execute its future strategic initiatives.
“We also see a heightened risk of asset-quality deterioration, although this is partly mitigated by the secured nature of its loan book.
Virgin Money
Fitch the fallout from the pandemic “results in heightened risks to Virgin Money UK’s ratings since the bank enters the economic downturn from a position of relative weakness given its weak profitability compared with peers’ as the business continues to undergo restructuring following its 2018 merger.”
“We have reflected the highly likely impact of the economic and financial market fallout from the pandemic in a weaker assessment of earnings relative to when we last reviewed the bank’s ratings.
“We also see an increased likelihood of future asset-quality deterioration, particularly in SME lending and credit cards, as well as weaker capital generation,” the agency reported
Banks’ asset finance business operations
- Investec Bank has a subsidiary, Investec Asset Finance plc
- CYBG-owned Virgin Money plc runs an asset finance division
- Close Brothers Group plc operates an asset finance division
- Metro Bank plc operates two subsidiaries: SME Asset Finance Limited and SME Invoice Finance Limited
- The Co-Operative Bank plc runs its leasing through various subsidiaries (Second, Third and Fourth Roodhill Leasing Limited)
- Paragon Bank plc runs an asset finance division