Direct lease

Direct lease
See also

Direct lease is a very uniqe type of financial service for the banks themselves. In this kind of service the bank is the lessor and at the same time, the owner of the specified equipment[1]. As the owner, bank leases it directly to the end customer, what results in this not being considered a loan.

In short words, those leases are executory contractual agreements, usually between two sides, a customer and a bank, where bank lends equpiment it is an owner of, for a rental fee, applied for a specified time period. In a case where the bank doesn't have a designated department for booking direct leases, a lot of entries and characteristics of it, will usually be reflected within the bank's financial statements. That is assuming the bank runs a leasing division[2].

Types of direct lease[edit]

Two types of a driect lease are being distinguished: bipartite lease and tripartite lease[3].

  • Bipartite Lease

In this case there are two sides taking part in the transaction. They are: equipment supplier cum lessor and a lesse. It usually operates in a form of operating lease with built-in facilites, which can be for example upgradation of the equipment or addition to the original configuration. The lessor is bound to maintain the asset, and if the situation requires that, to replace it with on-pair equipment.

  • Tripartite Lease

In this case there are three sides taking part in the transaction. They are: equipment supplier, lessor and lessee. A very innovative sales-aid variant of the lease exists, where equipment supplier arranges for the lease finance in few possible ways:

  1. By providing a reference of a potential lesse directly to the leasing company
  2. By negotiating with a customer on behalf of the leasing company, usually taking care of the terms of a lease
  3. By arranging a lease on their own account and preparing a discount for the lease receivables with the leasing company

Advantages and disadvantages of direct lease[edit]

There are few advantages to the direct lease[4]:

  • Bank usually gets higher yield than while conducting equipment loan on an equivalent term
  • Bank is safe from the use of accelerated depreciation and experiences tax benefit
  • Often, residual values and renewable leases may increase the yield
  • The service being on-demand type
  • Maintaining current customers and expanding new customers group

There are also some downsides and hindrances[5]:

  • Bank would have to invest into training courses for inexperienced personnel
  • Developing a direct lease deparment might take some time and funds
  • Added tax and other legal aspects may end up being troublesome and time consuming, there are lots of documents that have to be submitted
  • Insurance program would have to be designed properly
  • Accounting department would receive a lot more work
  • Bank would have to figure out how to dispose returned equipment, that is expired in terms of leasing


  1. Clarke P.S., 2017, ch. 12.2
  2. Clarke P.S., 2017, ch. 12.2
  3. Khan M.Y., 2013, ch. 2.9
  4. Clarke P.S., 2017, ch. 12.2
  5. Clarke P.S., 2017, ch. 12.2


Author: Jakub Urban