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| MAPS : Consumer Borrowing in Europe: March 2004 |
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This report covers: consumer borrowing in Europe, Baltic States, Belgium, Czech Republic, Eastern Europe, Europe, France, Germany, Greece, Hungary, Italy, Netherlands, Poland, Portugal, Scandinavia, Spain, United Kingdom/UK, Western Europe,
BRIEF DESCRIPTION
| This report quantifies and analyses trends in consumer credit in a wide range of European markets. It identifies key financial services organisations by country, analyses consumer dynamics and considers likely future market developments. |
EXECUTIVE SUMMARY
| STRATEGIC OVERVIEW |
| Europe's countries fall into three blocks for credit: fizzers, bubblers and fizzlers. Fizzers include Estonia, Latvia, Hungary, the Czech Republic and Greece. Bubblers comprise an arc of nations with credit markets, stretching from Finland, south west to Portugal and then eastwards to Cyprus. Fizzlers, with the slowest growth, are in the Eurozone heartland in and around Germany. |
| Consumer credit as a percentage of gross domestic product (GDP) is high in the UK and low in Finland. Total lending (including mortgages and consumer credit) as a percentage of disposable income is higher in the Netherlands than in the UK, despite the UK's reputation for profligate borrowing. Looking specifically at consumer credit in relation to household income, the UK is the most indebted European nation. |
| Greece's credit market is the most dynamic among the Eurozone countries, but has been growing too fast for comfort. Credit markets are also growing rapidly in Eastern Europe. |
| Companies working to become pan-European lenders include BNP Paribas, Crédit Agricole and Santander Central Hispano. Provident Financial focuses on countries with a preponderance of low-income households and unsophisticated consumer credit sectors. Interest rate caps apply in several European countries and give borrowers helpful protection. |
| THE UK — PROPERTY BOOM FIRES BORROWING BONANZA |
| The UK's economic situation is relatively robust. This is just as well, because UK households and housing associations owed £936.69bn as at 31st December 2003. The amount outstanding rose by 0.7% just in December 2003. Rising debt levels among the under-25s are a significant worry for the future. |
| Much borrowing is for property improvement and buy to let, for financially assisting children and other relatives, and for new loans to refinance debts. |
| FRANCE — TOUGH MARKET |
| The French credit market is growing slowly. Strength in mortgage lending has reduced the capacity of mortgageholders to take on new consumer credit. Interest rate caps and privacy safeguards favour borrowers rather than lenders. |
| GERMANY — HARSH WELFARE CUTBACKS |
| Severe cutbacks in social welfare provision and reductions in job security are hitting German households hard. Households are tending to borrow to try to maintain their standard of living. Mortgages have been boosted by a grant to homebuyers — the Eigenheimzulage — but this is being drastically reduced and potential homebuyers fear it may end completely. |
| Privacy restrictions make accurate credit risk assessment difficult. There are large numbers of non-performing loans, which commercial banks are selling off. |
| BELGIUM AND THE NETHERLANDS — LIMITED SCOPE FOR GROWTH |
| Consumer protection and credit regulation is extremely strict in Belgium — users of revolving credit have to clear their debt at specific intervals. The market is not sufficiently attractive to inspire strong competition between financial-services groups. |
| In the Netherlands, many borrowers are struggling to meet repayment obligations, despite statutory limits on interest rates. Households' mortgage debts are more than twice their savings deposits. |
| SCANDINAVIAN COUNTRIES — LITTLE NEED TO SAVE, LITTLE REASON NOT TO BORROW |
| The long-established welfare states and the political stability of the Scandinavian countries encourage consumer confidence, including the confidence to borrow. Consumer borrowing has been rising significantly in Sweden and Finland. Lending is stable overall in Denmark, disguising a shift towards revolving credit and away from fixed-term loans. Bonds fund mortgage lending in Denmark, a practice that is spreading across Europe. |
| ITALY — CREDIT GROWTH DESPITE USURY LAW |
| Italy's consumer lending market is the least developed of the large EU economies. There is an interest rate cap imposed by the law against usury, but consumers are finding plenty of credit despite this. |
| SPAIN — HOUSEHOLDS STRUGGLE |
| One household in 12 in Spain spends over half its income on debt repayments. Lenders are worried about the debt burden carried by these households. On the other hand, almost half of Spanish households report being debt free and so form a potential market for new credit. |
| Mortgage lending is strong. This is partly due to demand from North Europeans for homes in the sun, making property worryingly expensive for the home population. |
| SOUTHERN EUROPE — CONTRASTS IN PORTUGAL AND GREECE |
| Consumer credit is surging in Greece, where borrowers benefit from controls over interest rates. |
| Conversely, Portugal's consumers are cautious about taking on new debt. Mortgage lending is inflated by demand for property from North European buyers. A subsidised mortgage scheme, which used to help low-income buyers, has been scrapped, making life tougher for young homebuyers. |
| EASTERN EUROPE — THIRST FOR CREDIT |
| There is a lack of accurate data in this region on which to base credit risk assessment and accounting standards are also an issue. These factors contribute to the worrying levels of repayment arrears and defaults. Bad debts are a problem for the rapidly expanding home-collected credit sector. Provident Financial, the leader in home credit in Eastern Europe, is one of the few UK companies to develop large-scale financial services in the region. |
| The consumer credit market in the East European countries joining the EU in 2004 would be adversely affected by the European Commission's proposals to harmonise — and strengthen — consumer credit regulations to help prevent borrowers from incurring debts they cannot afford to repay. |
| THE FUTURE |
| The EU's proposed Consumer Credit Directive has problematic aspects for lenders and borrowers. As drafted, it would have made revolving credit harder and more costly to obtain. However, in September 2003 the European Parliament insisted that the Directive was rewritten to have a softer impact on low-income borrowers. |
| Countries with interest rate caps protect consumers but make business less attractive for lenders if market interest rates soar. Any rise in interest rates, especially in countries without caps, would increase bad-debt levels, which are already worryingly high in Eastern Europe. Huge bad debts in South Korea are a warning to lenders in Europe and a sign for credit providers to be cautious as they enter the massive Chinese market. |
| Points to watch include: |
| Insecure economic development in Eastern Europe, where defaults need to be managed extremely carefully if the region is to live up to its considerable potential as a new market for credit. |
| Overdependence on tourism around the Mediterranean. A reversal in tourism income in Greece would slow the booming credit market there. |
| Pressures on incomes in the core Eurozone countries, notably Germany, France, the Benelux countries and Austria, as governments reduce welfare state provisions. Many consumers will have smaller disposable incomes from which to repay their debts. |
| Although UK consumers are overindebted, short- and medium-term economic prospects in the UK are brighter than those in most of Western Europe. |
TABLE OF CONTENTS
| Executive Summary |
| STRATEGIC OVERVIEW |
| THE UK — PROPERTY BOOM FIRES BORROWING BONANZA |
| FRANCE — TOUGH MARKET |
| GERMANY — HARSH WELFARE CUTBACKS |
| BELGIUM AND THE NETHERLANDS — LIMITED SCOPE FOR GROWTH |
| SCANDINAVIAN COUNTRIES — LITTLE NEED TO SAVE, LITTLE REASON NOT TO BORROW |
| ITALY — CREDIT GROWTH DESPITE USURY LAW |
| SPAIN — HOUSEHOLDS STRUGGLE |
| SOUTHERN EUROPE — CONTRASTS IN PORTUGAL AND GREECE |
| EASTERN EUROPE — THIRST FOR CREDIT |
| THE FUTURE |
| 1. Introduction |
| THE TOPIC |
| OBJECTIVES |
| METHODOLOGY |
| Problems in the Research Process |
| DEFINITION |
| 2. Strategic Overview |
| MARKET DYNAMICS |
| Market Issues |
| Market Status |
| Market Values |
| Table 1: Lending to Households in the EU |
| and Applicant Countries (million, ebn and e), 2002 |
| Table 2: Consumer Credit, Housing Loans and Other Loans |
| Outstanding in the EU and Applicant Countries |
| (ebn and e per head), 2002 |
| DISTRIBUTION |
| Table 3: Share of the Five Largest Credit Institutions in |
| EU Countries by Total Credit Assets (%), 1997-2002 |
| COMPETITIVE STRUCTURE |
| CONSUMER TRENDS |
| MARKET FORECASTS |
| UK Problems of Excessive Credit |
| £54bn Unnecessary Spending Just in the UK |
| Steady Growth in the 'Cofidis Eight' |
| Table 4: Growth in Consumer Credit in Belgium, |
| France, Germany, Greece, Italy, Portugal, Spain and |
| the UK (%), 1994-2002 |
| Table 5: Consumer Lending† in Selected European Countries (ebn and e per head), December 1993 to December 2002 |
| KEY POINTS |
| 3. The UK |
| BACKGROUND |
| EASY TO TAKE ON MORE DEBT |
| NEARLY £1 TRILLION OWED |
| Table 6: Growth in Net Indebtedness in the UK |
| (£m and index 1993=100), 31st October 1993 to |
| 31st December 2003 |
| CONSUMER CREDIT — A QUARTER THE VALUE OF |
| PROPERTY-BACKED LOANS |
| Table 7: Total Lending to Individuals by Type of Lender |
| (%), December 2003 |
| INSECURITY IN UNSECURED LOANS |
| CARDS À LA CARTE |
| MORTGAGE SLOWDOWN, EQUITY RELEASE EXPLOSION |
| EXAMPLES OF LENDERS |
| Barclays PLC |
| Corporate Strategy |
| Advertising |
| Distribution |
| Profitability |
| Table 8: Financial Results for Barclays PLC (£m and number), Years Ending 31st December 2000-2002 |
| Future Company Developments |
| HSBC Holdings PLC |
| Corporate Strategy |
| Advertising |
| Distribution |
| Profitability |
| Table 9: Financial Results for HSBC Holdings PLC |
| ($m and number), Years Ending 31st December 2000-2002 |
| Future Company Developments |
| Provident Financial PLC |
| Corporate Strategy |
| Advertising |
| Distribution |
| Profitability |
| Table 10: Financial Results for Provident Financial PLC |
| (£m, £000 and number), Years Ending |
| 31st December 2000-2002 |
| Table 11: Segmental Analysis for Provident Financial (£m), Half Years Ending 30th June 2002 and 2003 |
| Future Company Developments |
| The Royal Bank of Scotland Group PLC |
| Corporate Strategy |
| Mint |
| Advertising |
| Distribution |
| Profitability |
| Table 12: Financial Results for The Royal Bank of Scotland Group PLC (£m and number), Years Ending 31st December 2000-2002 |
| Future Company Developments |
| KEY POINTS |
| 4. France |
| HOUSEHOLDS CAUTIOUS |
| PRIVACY LAWS AND INTEREST RATE CAPS |
| MORE DEBIT THAN CREDIT |
| EXAMPLES OF LENDERS |
| BNP Paribas |
| Corporate Strategy |
| Profitability |
| Future Company Developments |
| Crédit Agricole |
| Corporate Strategy |
| Sofinco |
| Finaref |
| Profitability |
| Future Company Developments |
| Other Key Players |
| Abbey National |
| Egg |
| Euler & Hermes |
| La Poste |
| KEY POINTS |
| 5. Germany |
| HOUSEHOLDS TRY TO MAINTAIN LIVING STANDARDS |
| AGENDA 2010 |
| RATE CAPS INHIBIT HOME CREDIT MARKET |
| PRIVACY RESTRICTIONS |
| GRANTS SPUR FOR MORTGAGES |
| Table 13: Lending to Employed and Other Individuals† |
| in Germany (% of total balance sheet), 2002 |
| RISE OF COBRANDED CARDS |
| EXAMPLES OF LENDERS |
| CC-Bank |
| Corporate Strategy |
| Future Company Developments |
| Deutsche Bank |
| Corporate Strategy |
| Future Company Developments |
| HypoVereinsbank |
| Corporate Strategy |
| Future Company Developments |
| KEY POINTS |
| 6. Belgium and the Netherlands |
| HEAVILY REGULATED BELGIAN MARKET UNFRIENDLY TO LENDERS |
| Strong Consumer Protection |
| Mortgages the Key |
| Little Competition Between Credit Cards |
| DUTCH HAVE BORROWED TOO MUCH |
| Repayment Problems |
| Low Rates Spur More Borrowing |
| EXAMPLES OF LENDERS |
| ING |
| KBC |
| KEY POINTS |
| 7. Scandinavia |
| PROTECTED BY WELFARE STATES |
| SWEDEN |
| FINLAND |
| DENMARK |
| Europe's Largest per Head Mortgage Bond Market |
| KEY POINTS |
| 8. Italy |
| SAVINGS RATE FALLS |
| CONSUMERS FIND PLENTY OF CREDIT |
| PARMALAT REPERCUSSIONS |
| EXAMPLES OF LENDERS |
| Banca Findomestic |
| Other Lenders |
| KEY POINTS |
| 9. Spain |
| WORRYING TRENDS FOR CREDIT PROVIDERS |
| Table 14: Forecast Population Change in Spain by Age Band (%), 2003-2010 |
| DEBT HARDER TO SERVICE |
| ONE IN NINE IS UNEMPLOYED |
| RAPID GROWTH IN MORTGAGE FINANCE |
| Table 15: Lending by Credit Institutions to Households |
| (_bn), 2000-2003 |
| PROPERTY PRICE BOOM FORCES HOMEBUYERS TO TAKE LARGER MORTGAGES |
| EXAMPLE OF LENDERS |
| Grupo Santander |
| Corporate Strategy |
| Profitability |
| Future Company Developments |
| KEY POINTS |
| 10. Southern Europe |
| CREDIT SURGE IN GREECE |
| CAUTION IN PORTUGAL |
| Outstanding Credit Falls |
| French and Spanish Interests |
| KEY POINTS |
| 11. Eastern Europe |
| UNPAID DEBTS A RISING DANGER |
| HOME CREDIT SOARS |
| POLAND |
| THE CZECH REPUBLIC |
| HUNGARY |
| THE BALTICS |
| KEY POINTS |
| 12. Consumer Dynamics |
| LIVING FOR TODAY — BUT WHO WILL FINANCE THE FUTURE? |
| BORROWINGS HUGE BUT ONLY 65% OF CREDIT CARDS ARE IN USE |
| US GROUPS KEEN TO GROW IN EUROPE |
| CREDIT UNIONS |
| KEY POINTS |
| 13. The Future |
| EUROPEAN COMMISSION IS SUSPICIOUS OF CREDIT |
| DATA PROTECTION LIMITS CROSS-BORDER SERVICES |
| LIMITATIONS OF CULTURAL HABITS |
| Borrowers Perceive Border Barriers |
| INTEREST QUESTIONS |
| FRAUD IS TOUGH FOR CUSTOMERS |
| EASTERN PROMISE? |
| SOUTH KOREAN WARNING |
| POINTS TO WATCH IN EUROPE |
| KEY POINTS |
| 15. Further Sources |
| Associations |
| General Sources |
| Government Publications |
| Other Sources |
| Bonnier Information Sources |
Text © 2004 Key Note
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Last updated by Amanda Porteous 2004
