The Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $650 billion equipment finance sector, showed overall new business volume for August declined by 35.1 percent when compared to the same period in 2008. For 2009, the MLFI reported month-to-month new business volume decreased 22.9 percent from July to August, from $4.8 billion to $3.7 billion.
The MLFI-25 reported receivables over 30 days increased to 5 percent as compared to 3.9 percent in July. On a year-over-year basis, receivables over 30 days increased by 47.1 percent. Charge-offs increased sharply to 2.5 percent from 1.67 percent in the prior month and rose by 115.5 percent compared to August 2008. Credit approvals improved to 67.6 percent when compared to the previous month, however, they declined from 72.6 percent in August 2008. Total headcount for equipment finance companies decreased slightly in the July-August period.
Seventy-five percent of participant companies reported that fewer transactions were submitted for approval during the month, due to tightening underwriting standards and lower demand.
“The MLFI-25 data illustrate a pattern of stagnant growth in new business volume and at the same time, some deterioration in credit quality,” said ELFA President Ralph Petta. “It should come as no surprise to those following the equipment finance sector that it will take some time for troubled portfolios to work their way through the system.”
The Federal Reserve Board released its charge-offs and delinquency statistics for the second quarter 2009 for financial institutions. Comparing all products offered by financial institutions, lease financing receivables performed well with a 1.52 percent charge off ratio compared to 2.64 percent for all financial products. Delinquencies for lease financing receivables (defined as over 30 days) dropped to 2.13 percent. Lease finance receivables were one of the best performing financial product categories compared to an overall average of 6.15 percent for financial products.
The Equipment Leasing & Finance Foundation's Monthly Confidence Index for September dropped slightly to 53.8 compared to 54.9 in August. The majority of survey respondents believe business conditions will continue to stabilize over the next four months. For more detailed information on the Monthly Confidence Index visit http://www.leasefoundation.org/.
The MLFI index is released globally at 9 a.m. Eastern time from Washington, D.C. each month, on the day before the U.S. Department of Commerce releases the durable goods report.
The MLFI-25 is a barometer of the trends in U.S. capital equipment investment. Five components are included in the survey: new business volume (originations), aging of receivables, charge-offs, credit approval ratios, (approved vs. submitted) and headcount for the equipment finance business.
The MLFI-25 measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies from small-ticket, middle-market, large-ticket, bank, captive and independent leasing and finance companies. The responses then mirror the economic activity of the broader equipment finance sector and current business conditions nationally.
The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. Its more than 600 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers.
The Equipment Leasing & Finance Foundation is the non-profit affiliate to the Equipment Leasing and Finance Association, providing future-focused research to the equipment finance industry.