Matthew Sebag-Montefiore, partner, Oliver Wyman

Efma and Oliver Wyman identify key trends in European retail credit market

A report from Efma and Oliver Wyman reveals that the general slowing of retail credit growth in the last few years has hidden significant discrepancies in retail lending markets across Europe.

 
The report, European Retail Credit Survey: Exploring the map, identifies three distinct groups that European countries fall into: “watch list” markets that have suffered most during the economic crisis; markets that continue to grow (either because of their relative economic health or because they are emerging markets whose credit penetration levels are moving up to European averages); and stagnant markets that have experienced relatively low retail credit growth.  
 
Focusing on 21 European countries (Denmark, Norway, Sweden, Finland, Russia, Turkey, Greece, Hungary, Poland, Czech Republic, Germany, Austria, Italy, Switzerland, Belgium, Luxembourg, Netherlands, Spain, Portugal, Republic of Ireland and the UK), the report used data drawn from publicly available resources including analyst reports, market commentary and press articles, as well as information gained from Efma survey results to evaluate the state of the European retail credit market landscape. Countries were then categorised according to their economic growth and non-performing loans (NPL) status. According to the report, six fall into the growing credit market segment, five into the stagnant credit market segment and ten into the watch-list credit market segment.
 
In addition to highlighting the trends in each of these credit market segments, the report offers insightful resolution strategies – and not just for the watch list group.
 
“Even in growing markets, growth will slow over the next five years,” says Matthew Sebag-Montefiore (pictured), partner, Oliver Wyman. “Institutions in those markets need to prepare for a tougher environment. To avoid making the same mistakes as the watch-list countries, these institutions should invest in retail credit analytics covering underwriting, portfolio management and collections.”
 
Over the next two years, the report predicts that growth in European retail markets will slow further as the Eurozone crisis continues to subdue the supply of and demand for credit. But it does still forecast a 1.4 per cent increase in total outstanding balances. Despite the slowdown, opportunities remain for meaningful growth for those that take on a systematic and disciplined approach to origination and workout.
 
“Although the outlook for the European retail credit market remains relatively bleak, banks should take comfort in the fact that they can take steps to reverse mistakes that have been made so far and better position themselves to deal with upcoming market developments,” says Patrick Desmarès, secretary general of Efma. “We hope that the recommendations we have made in this report will help banks to develop better processes and analytics, increase sales conversion, and improve pricing, credit and NPL management to boost retail credit profits.”

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