The European trading sector has seen a notable uptick in consumer credit measures in most countries for the past few years. As of July 2021, the volume of customer credit from the European banks exceeded the previous figure by 26%. The statistics also outperformed total lending growth of about + 13% over the same period of the last three years. Many business specialists describe this regular increase of consumer credit against strong consumer demand due to favorable macroeconomic conditions accompanied by lower unemployment and higher disposable revenue, provided by customer trust increase. On the side of the stock, banks tend to offer unsecured loans in low-interest-rate conditions to increase profitability. Despite the stimulus for increase, consumer loans follow only a small portion of the entire European bank’s loan portfolio. Last year, consumer credit accounted for 9.1% of total amortization credit. However, analysts at the Swedish company smslansnabb.se report an improvement in consumer credit as a rate of total lending. This is between 16% and 23%. In contrast to other segments, consumer loans also tend to have above-average reductions. In the previous quarter of 2021, 6.5% of consumer loans issued by European banks were delayed, while the average interest rate on non-performing loans in European countries was only 2.8%.
Since there are constant low/negative interest rates in the market, the forecasts of macroeconomics will fail and lag profitability. This way, banks become more vulnerable to products with greater margins and more moderate credit measures. For this reason, administrators are urged to strictly observe consumer credit trends to identify potential risk areas in this segment at the right time. The European Banking Authority also aims to develop bank lending criteria and lending systems, including assessing the creditworthiness of borrowers, especially in lending and monitoring guidelines dealing with specific credit ratings and consumer credit terms.
What the future holds for consumer credit regulations in Europe?
Despite the important increase in the past years, the percentage of consumer credit in the total loan market has not altered significantly. For the past five years, consumer loans’ share of total loans and receivables at amortized cost progressed by only 27 basis points. Over the equivalent period, consumer credit as a percentage of total household credit increased from 16.5% in July 2015 to 16.4% in July 2020. Consumer finance accounted for less than 6% of total lending. However, there is a big gap between consumer credit and total credit, with consumer credit accounting for more than 21% of total credit in some countries. At the same time, the analysis, given by Smslansnabb records that banks are actively providing credit to consumers, and consumer credit is growing more smoothly than any other section of credit. There is another important factor that should be noted here. People are getting consumer loans not only from banks but also from other lending companies and organizations. In most fields, non-bank financial companies are subject to a bank-equivalent administrative system, but in other circumstances, they are directed to another, often less valid supervisory system. That is why it can bring risks to the overall consumer credit regulations. Given the neutrality of the European financial system, regulators need to admit the vulnerability of consumer credit risk to the business cycle. This is in line with banks’ increasing desire to boost their appearance to consumer credit, despite the risks essential in banks.