Credit Risk Managers Predict Credit Problems to Worsen in Europe

Last spring, European credit risk managers were somewhat optimistic about delinquencies across mortgages, auto loans and other credit products.

Now, much of that confidence seems to have evaporated.

The third European Credit Risk Survey, which was conducted by FICO and Efma in September, found that:

Delinquencies are expected to worsen. Four times as many credit risk managers expect a worsening of delinquencies for small business loans, current accounts and credit cards than expect delinquencies to improve. For mortgages and auto loans, three times the number of respondents predicted deterioration in delinquencies as predict improvement. Only 12-14 percent of responses indicated an expectation for decreasing delinquency on any surveyed product.

Impacts will affect portfolios. Even though 77 percent of the credit risk managers polled have improved their processes to address the conditions of the last three years and a full 97 percent say that their credit decisions are made with a strong understanding of borrower debt capacity, more than 40 percent of respondents said that Eurozone economic problems and unemployment will have more than a modest impact on their portfolios.

Credit gaps remain. The credit gap for consumers and small businesses persists and is worst where delinquency predictions are worst.

Consumers are less focused on using credit. 84 percent of respondents agree or strongly agree that consumers are trying to save more, and 71 percent agree or strongly agree that borrowers are more reluctant to seek or use credit.

Businesses may feel credit crunch again. Half of those polled expect both the volume of small business applications and the amount of credit requested to increase. However, only 36 percent of respondents expect credit granted to small businesses to increase, and 28 percent expect it to decrease.

"These results are fully in line with the economic drama playing out across Europe," said Mike Gordon, vice president and general manager for FICO in Europe, the Middle East and Africa. "Mounting economic problems and uncertainty about the adequacy of public and private sector responses are contributing to a darkening picture of credit performance over the next few months. We think lenders that focus on strengthening relationships with good customers will fare best here."

Likewise, these results tell me it's time to be "strengthening relationships" with your suppliers, as well. As we've seen before, zombie suppliers can be a real threat to productivity. Given so much uncertainty in the economy, it's critical that you devote special attention to your essential suppliers and their financials. Don't let your production line be caught off guard by a company destined to be a delinquency statistic.

TAGS: Finance
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