COUNTRY FOCUS: ITALY
A return to form on the back of Cura Italia Decree
The Italian leasing industry may have initially had a very mixed response to the Covid-19 pandemic, but government support has since created a firewall for SMEs and leasing companies. Che Golden reports
ndustry experts estimate there were only two months in 2020 when the pandemic had a significant impact on the Italian leasing business, which is a positive result for a year when the world’s economy has been hammered by the virus.
According to Christian de Pastre, chief executive of Société Générale Equipment Finance Italy, most of the businesses and the related investments really stopped for two months, in early 2020. “Thanks to the tax incentives and the exceptionally low cost of funds, customers continued to invest and they did not change that much in their original development plans,” he said. “What the Covid crisis had a negative influence on was the delivery capabilities of the suppliers, which saw a significant slowdown, causing delays for the leasing companies in completing the deals and booking the credit-approved pipelines.”
Philippe Desgeans, country manager for BNP Paribas Leasing Solutions Italy
De Pastre said that in the first four months 2021 the leasing activity in Italy has got back to the net-book value figures before Covid crisis. This is due to the rebound of the Italian economy following a drop in GDP in 2020 of 8.8 per cent. The experts’ expectations for 2021 is 5 per cent growth and for 2022, 4 per cent growth.
According to year-to-date April 2021 figures by Assilea (the Italian leasing association), the global leasing market increased by 49 per cent versus last year, with the financial lease for equipment portion up by 50 per cent.
According to BNP Paribas figures, in 2020 the total market loss was 18 per cent in volumes (€22.9bn) compared to 2019 and the number of leasing contracts signed decreased by 23 per cent (537,000). This is mainly due to the drop in investments in general, as the leasing penetration rate has been quite stable between 2019 and 2020: private investments – real estate and assets investments excluded – dropped from €151bn in 2019 to €128bn in 2020 whereas leasing’s penetration rate on those investments decreased by 0.6 per cent, standing at almost 18 per cent.
“In 2020, leasing represented 30 per cent of all medium- and long-term productive investments and reached 35 per cent if we exclude real estate investments,” said Philippe Desgeans, country manager for BNP Paribas Leasing Solutions Italy. “From the third quarter of 2020, thanks to the government aid plan, including tax incentives and guarantees, companies started to invest again and leasing turned out to be the financial tool allowing businesses to get back to investing, especially in Italy.”
With regard to vendor finance, the leasing market is currently quite strong. “There are many vendors, even more than there were a couple of years ago, looking for leasing solutions for their customers,” said de Pastre. “The room for specialised vendor finance companies increased during the last years thanks to the reduction of the number of captive companies. The recourse to leasing solutions also grew thanks to tax incentives schemes provided by the government. This allowed leasing companies, like us, to overcome the Covid-19 crisis without losing volumes and sometimes increasing them.”
A crucial move by the Italian government to help Italy’s economy weather the Covid storm was the promulgation of a payment suspension and moratorium for loans granted to SME and micro-enterprises via the Cura Italia Decree, enacted in March 2020, the measures also offered liquidity support through government funds and guarantees. According to de Pastre, this plan to support the economy was largely taken up by the leasing community and the banks. The moratorium has been extended until mid-2021.
Some of the leasing companies have used the moratorium as a blueprint and tweaked it for their customers or extended it further. For instance, in vendor finance, Société Générale Equipment Finance has designed and promoted specific schemes under the label “Stronger Together” to support its partners in proposing adapted payment plans for the financing of their equipment to end customers.
BNP Paribas took it a step further. According to Desgeans, each leasing company not only complied with the law but enlarged it to other business customers. “At BNP Paribas Leasing Solutions, we decided to extend this possibility to all our customers on the same basis as the Cura Italia Decree and we had to manage four different kinds of moratorium,” he said.
“Of course, the Cura Italia based on the SME criteria, but also, as a financial institution, the moratoria based on the Italian Banking Association rules (that were different to the government ones), we also applied the voluntary moratoria decided by our retail banking company within the Group, BNL, to its customers, and, finally, the fourth one, as we decided from the beginning to extend the Cura Italia to customers that did not fall in the categories defined by the government but were still affected by the crisis.”
However, while the moratorium process has been credited with keeping cash flowing in the leasing sector, it is not without its downsides. “While the market is healthy, there is uncertainty that has been created by the moratoria,” said Luca Nuvolin, Italian Country Manager of DLL Group. “Around 30 per cent of contracts are still affected by the moratorium on payments, therefore it's unclear which companies will have the ability to start to pay again, and which ones will default. What is certain, and that's what is making me feel optimistic about the market, is that many companies are making efforts to [continue funding] and government subsidies are working. We're living in an unprecedented situation, but the future can be bright.”
Indeed, there are sectors of the Italian market that have emerged or even boomed during the Covid crisis. “There is an increasing interest and significant room for growth in the financing of sustainable assets and green business together with CSR [Corporate Social Responsibility] activity,” said de Pastre. “The agriculture sector has also seen a significant development in the last 18 months. For equipment, the operating lease share decreased in favour of finance lease, largely boosted by tax incentive plans.”
The scramble to digitalise in every sector as employees moved to home working boosted the technology sector and de Pastre also saw a strong performance in the medical sector, notably chemicals and pharmaceuticals, and in the food industry. He said the outlook is positive for industrial equipment sector, which was active in 2020, and there are good signals
from the construction sector. “Transportation is still struggling, especially the part linked to tourism and retail.”
Desgeans pointed out that the construction equipment, commercial vehicles and industrial vehicles markets, that normally follow the cycles of the economy, have been particularly strong despite the big drop in GDP. “This is a result of the incentive provided by the recovery fund programme, as well as the current strong recovery of the global economy,” he said. “Agriculture has been a very resilient market as it was an essential activity during lockdown measures to ensure food delivery to the population, but it helped that international market prices were positive and this stabilised the investment level of the sector.” Desgeans said that the medical equipment market suffered the most during lockdown, especially in the private sector, but it is now recovering strongly.
Like their customers, leasing companies have had to scramble to adapt to the new world that Covid imposed on us all. It was not the smoothest of transitions, according to Nuvolin. “I think reactions to Covid could be divided in two phases: uncoordinated and inconsistent at first, balanced and supportive later,” he said.
“The initial challenge was to change our habits and develop Smart Working to deliver the best possible service to customers. The following step has been the definition of the correct risk appetite, according to the pandemic situation. The key was finding the right balance between the needs of customers and leasing companies.”
Smart working has recently been mentioned in various decrees issued by the Italian government during the Covid-19 emergency phase of the pandemic. It is similar to the term flexible or hybrid working, where employees often work remotely and are able organise their working hours around other commitments.
According to a recent report from the Italian National Institute of Statistics (ISTAT) – 90 per cent of large enterprises (with over 250 employees) and 73 per cent of medium-sized enterprises (between 50 and 249 employees) introduced or extended the possibility for their employees to engage in smart working during the emergency period.
“Digitalisation and customisation are the key developments,” said De Pastre. “Over the last year, the New Sabatini fund had an incredible impact and allowed customers to make investments otherwise impossible, increasing at the same time the GDP.
Under the Italian Ministry of Finance’s New Sabatini Law, businesses could apply for the financing of capital goods (plant and machinery) potentially via subsidised loans, government guarantees and interest payment contributions.
“Smart Working also had a big impact: it boosted digitalisation in an unprecedented way. In this new leasing market, flexibility and customisation are pivotal: operating lease contracts answer to such needs.”
“We have also accelerated dramatically our digitalisation in order to provide our partners and customers with service and business continuity during the period, while all our staff were working from home and physical contacts were not possible,” de Pastre continued. “This has contributed to change the interaction mode internally and externally and many positive aspects in terms of operational efficiency will remain post Covid.”
BNP Paribas was already slightly ahead of the curve as it had already implemented a remote working programme a few years ago. Because of this, Desgeans said the Italian operation was able to reach 100 per cent home working capacity within a few weeks.
“We have seen in 2020 – and it has further increased since then – a major shift towards investments supported by government subsidises schemes, which proved to be very efficient for the decision to invest,” said de Pastre. “Another incentive to investment is linked to the European recovery plan, which drives a lot of funds towards infrastructures and mobility – being a driving force for the construction equipment and transport markets. While companies had to adapt and transform themselves due to lockdown measures, they had to renew their IT and remote working devices, representing an opportunity for the IT leasing market.”
De Pastre pointed out that the health of the economy, and that of SMEs, goes together. If the national GDP forecast is positive, the leasing outlook is positive for both the second half of 2021 and 2022. The Italian government’s economic recovery plan, the PNRR, is expected to boost leasing volumes in the next couple of years.
The view that business can only get better for the Italian leasing market is echoed by Nuvolin. “My outlook is very positive, I'm optimistic. There have been reduced investments last year, but all the companies that will be able to restart, will make investments. A sort of economic boom is happening, also thanks government subsidies.”
However, Desgeans warned the industry needs to be cautious. “The outlook seems very positive, driven by the recovery programme and the growth of the economy in general,” he said. “However, in the near future, the market could be affected by a shortage of components, which will impair production of big OEMs. Their ability to overcome such constraints will be key to stabilising the supply to the level of demand, to limiting production price index (PPI) and to support the growth of the leasing market over the next two years.”