Latin America Experiencing Outstanding Leasing Growth
Latin America’s equipment leasing and finance industry expanded by an estimated 46.5% in 2006, which strongly outpaced the region’s average growth rate of 5.3% in gross domestic product (GDP), according to a new report by The Alta Group Latin American Region. This is a significant trend considering recent leasing growth in Latin America. Our previous reports have estimated that the region’s leased assets increased by 55% in 2005.
Brazil is the leading contributor to leasing gains in Latin America. Nearly half of the region’s leasing volume is concentrated in Brazil, which increased its leased assets by 57% in 2006 despite having one of the lowest GDP growth rates.
How is it that Brazil’s leasing industry continues to grow? The answer may reside in the regulation of the leasing industry. In comparing leasing law and regulations worldwide, Alta has concluded that Brazilian leasing laws and regulations are among the best in emerging markets.
Chile technically has the second largest leasing volume in Latin America, but most of its leased assets relate to real estate, not equipment financing. The Colombian leasing industry actually ranks second in sustainable growth. Despite the fact that their industry is still threatened by potential bank consolidation, lessors in Colombia have shown solid leadership and have propelled the industry forward.
Argentina, ranked seventh in 2006, may move to third place in future listings. Despite growing inflation, Argentina has a strong business, legal and regulatory environment. Its leasing industry grew 64% in 2006 alone.
There are many trends affecting the leasing industry in Latin America: bank dominance, a vendor finance boom and infrastructure financing opportunities, to name just a few.
Banks clearly rule the Latin American leasing industry. A total of 73 of the 100 largest leasing businesses in Latin America are either bank affiliates or bank leasing portfolios. They represent more than 80% of the total Latin American leasing portfolio. Other businesses ranked in the top 100 include 10 captive leasing companies and 17 independents.
Leading vendors have certainly discovered the virtues of leasing as a promising sales financing tool in Latin America. In the vendor finance space, technology and telecommunications companies including IBM, HP, Dell, Positivo (a Brazilian vendor ranking second in PC sales), Lenovo, Cisco, and others are very active in Latin America, building customer financing solutions with the support of well-established leasing companies. Construction and mining equipment brings such key players as Caterpillar and Terex into the vendor program business. Other areas of investment cover printing equipment, entertainment and related equipment.
Infrastructure financing of the Panama Canal expansion, airports, toll roads, power plants and other initiatives represents another leasing trend in Latin America. Large and ambitious projects are underway that provide major business opportunities, particularly for multinational lessors. The expansion of the Panama Canal is designed to enhance trading routes between Latin America and the Caribbean with the Pacific Rim, and in particular with China. Other significant projects include the FARAC Mexican toll road networks.
One trend that may be fated to change is a low delinquency rate. Thanks to high liquidity and economic growth fueled by the good exchange terms of certain dominant commodities, such as oil and minerals, leasing company portfolios showed low delinquency in 2006. But Alta anticipates that delinquency rates will increase in 2007 and beyond due to the shift in risk policies induced by the sub-prime crisis in the US.
Alta Group also lists and ranks the 20 fastest-growing companies and 15 major companies with a multinational presence there. It also details major divestitures of leasing portfolios from banks, as well as mergers and acquisitions (M&As), in 2006. Here are some of the characteristics of the Latin American leasing market, in terms of leading companies and significant M&A activity.
Largest – Brazil’s Itauleasing remains the largest leasing company in Latin America. Others topping the list include Banco Itaucard and Safra Leasing in Brazil, Popular Auto in Puerto Rico, Banco Santander in Chile and Leasing BanColombia in Colombia.
Fastest-growing – Argentina is home to the three fastest-growing companies in Latin America: Banco Saenz, Banco de San Juan and Nuevo Banco de Entre Rios. Others in the Top 20 operate in Puerto Rico, Brazil, Colombia, and Mexico. Only one of the 20 fastest-growing companies expanded due to a merger; the rest grew organically.
Multinationals – The leasing industry has enjoyed a marked increase in foreign investment in the past 10 years. Leading multinationals involved in Latin American leasing in 2006 included Santander, BBVA and Citibank. However, multinational market share actually decreased from 2005 to 2006, from 22.8% to 21.63%, perhaps due to gains by Itau of Brazil and other major players.
M&As – There were fewer significant M&As in 2006 than in 2005. More notable ones included: the merger between Banco Wiese, Leasing Wiese, and Banco Sudamericano into Scotiabank Peru to consolidate a leasing portfolio of US$295.04m; the merger between Dibens Leasing and Unibanco Leasing in Brazil to consolidate a leasing portfolio of US$871.8m; the merger between Santander Brasil Arrendamento Mercantil and Banespa to consolidate a leasing portfolio of US$170.6m; and the acquisition of BankBoston Argentina by Standard Bank of South Africa to consolidate a leasing portfolio of US$57.8m.