Banking · Lease Structures

Assertion (A): A bank should generally prefer financing a lessee through an operating lease structure rather than a finance lease structure when the asset being financed is subject to rapid technological changes and has a high resale value in the secondary market. Reasoning (R): In an operating lease, the lessor (or the bank's subsidiary) retains the ownership and the residual value of the asset, and if the asset retains its value well despite technological shifts, the lessor can generate higher overall returns by re-leasing or selling the asset after the initial short-term lease expires.