2014 in review was a year of mixed results. On average the asset finance volumes were down, primarily driven off the back of macroeconomic trends.
The business environment remains volatile and investment into operations, working assets or otherwise remains a key area of concern for most business entities and has been the same for the last three years.
2015 is set to be an even tougher year in the South African economy, despite lower oil prices and a rather stable outlook on interest rates, the ongoing stress on energy supply, industrial action and the depreciation of the Rand against major currencies remains a key concern for the average South African business and this is so evident in the latest business confidence figures as at end of 2014.
“In perspective, any business reliant on the import of assets, for sale or production use, would have experienced a Rand depreciated against the US Dollar, Euro and British Pound by 43%, 35% and 46% respectively, between January 2012 and December 2014,” says Standard Bank’s head of Vehicle and Asset Finance, Business, Toni Fritz.
Ms Fritz says factory output contracted by 1.3% y/y in November from a slightly upwardly revised 2.3% y/y in October.
“The biggest swing factor has been motor vehicle production determining monthly manufacturing growth rates, despite only carrying an 8.6% weight within the index. However, the PMI indicates that activity and sentiment in the sector picked up dramatically in January 2015. We hope this recovery will not be short lived due to power outages”.
Taking all of the factors into account, we foresee that the business growth within the asset finance space is set to remain sluggish but with positive year on year growth. Specific focus on certain sectors and industries will be key in driving this growth and will help aid risk management.
While the “new” versus “used” asset trade-off influences many banks’ appetite to some degree, we are expecting that, as a result of delayed re-investment by some businesses over the last three years, replacement cycles will start to take place during the course of the next two years and this will aid growth in the financing of new assets; and subsequently the asset finance industry as a whole.