Decision management
technology vendor FICO and the European Financial Management
Association, have produced the first European Credit Risk
Survey
. It concludes that banking regulations may dampen
credit supply, and that there has been a rise in credit demand that
outpaces the growth in supply in most regions.

 

Pie chart showing the level of overdrafts in EuropePolitical pressure on banks to
extend credit to individuals and small businesses in order to fuel
economic growth has coincided with a new caution on the part of
regulators anxious to avoid a future bank crisis. Banks are also
becoming more cautious due to the more aggressive capital
requirements of Basel III.

According to the first
European Credit Risk Survey, a joint report from analytics
and management technology vendor FICO and the European Financial
Management Association (EFMA), more than half (52%) of European
credit risk managers surveyed said regulations will reduce credit
supply and bank profitability.

One-third of respondents said
Basel III would cause consumer lending to decrease, while 62% of
respondents said new banking regulations will reduce profits from
consumer and SME credit portfolios.

Pie chart showing the credit card delinquencies in EuropeAlthough more than half of
risk managers said that consumers will request more credit, only
47% believed that the amount of credit extended will increase,
while 17% believed it will decrease.

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Mike Gordon, managing
director in EMEA for FICO, said: “While a variety of factors,
including delinquency expectations and reserve requirements, may
inhibit supply, credit risk managers are indicating cautious growth
for the months to come.”

The survey revealed tensions
in an industry that is seeking growth, but which must move more
cautiously, due to a potential tightening of banking
regulations.

“On the basis of these
forecasts, consumers and business owners in many countries are
likely to perceive a ‘credit gap’ for some time,” Gordon
said.

The survey reported a number
of regional variations:

In the UK, 38% of respondents
said that applications for new credit will increase; 46% foresaw
growth in the amount of credit extended, indicating that supply
will meet demand.

By contrast, in Germany,
Austria and Switzerland, nearly 80% of respondents expected a rise
in the amount of credit extended.

“Bankers in the German region
were unique in their reaction to regulatory demands, with 67% of
respondents forecasting that regulations will cause an increase in
available credit, rather than a decrease,” said Gordon.

With respect to retail
mortgage delinquencies, 63% of respondents in Central and Eastern
Europe (CEE) forecast delinquencies to rise, against 50% in the UK
and Ireland and only 20% in Germany, Austria and
Switzerland.

Bar chart showing credit risk managers forecasts at Credit SuisseLess than 10% of
respondents expected to see overdraft levels fall, while nearly
half (48%) expected delinquencies to worsen.

In the UK, overdraft
delinquency was expected to worsen by 43% of
respondents.

In CEE countries, 55% of
respondents expected overdraft delinquencies to
increase.

“As the current account
overdraft obligation signals a cash flow problem for the consumer,
a problem in overdrafts could have knock-on delinquency impacts for
payments made toward other credit obligations,” Gordon
said.

“We were surprised how
pessimistic the respondents were on this question.

“The amount of interest [by banks] in segmentation of
existing customers around overdrafts and figuring out what to do
with them is a hot spot right now.”