Survey shows shifting relationship between Europe’s banks and customers

The relationship between banks and borrowers is changing with more optimism for credit performance in spite of continuing concerns about mortgage markets, according to a European credit risk survey published on Thursday.

The survey by Fico, the data and management consultant, and retail finance association Efma. was conducted in May among risk professionals in Europe. It asked participants for their outlook for the next six months.

The responses suggested that consumers’ relationships with their banks were changing with consumers more concerned with service, more reluctant to borrow or use credit and more interested in building up their savings.

Some 79% of credit risk managers polled say consumers across Europe are concerned with the quality of the service provided by banks. The figure for the UK was 77%. In addition, 79% of respondents say customers are more interested in building up their savings and 66% say customers are more reluctant to borrow or use unsecured credit. The figures for the UK are 84% and 85% respectively.

Respondents were split on the issue of bank trust. Slightly more than half of respondents (52%) said that customers were more likely to mistrust the banks, yet nearly as many (48%) felt that this was not true or that the opposite was true. In the UK, many more respondents (77%) cited greater mistrust and only 23% said this was not true.

Risk managers were more optimistic about delinquencies than in a prior survey in February though they remained concerned about developments for mortgages and current account overdrafts. Managers continue to be cautious about delinquency rates for dominant retail credit products and the outlook for mortgages remains bleak, the survey said.

The number of respondents who expect mortgage delinquencies to be the same or increase rose from 69% in February to 84% in May. Only 16% of respondents expect mortgage delinquencies to decline somewhat. In the UK, delinquencies are expected to either worsen (47%) or remain at their current high levels (53%).

“Based on our survey’s results, it’s too early to call the bottom on mortgage performance,” said Mike Gordon, Fico managing director for EMEA. “While we don’t expect to see a trend for ‘strategic defaults’ in European markets – as we have in the US, where some homeowners are skipping mortgage payments by choice rather than necessity – distressed borrowers continue to struggle with mortgages that may no longer be affordable or attractive to them,” he said.

Credit supply and demand appear to have become more balanced, suggesting a decline in demand by consumers and a rise in supply from banks spurred by stimulus programmes and more lender optimism, the survey said.

There has also been a shift in payment habits with more than 40% of respondents saying that consumers were paying their credit card ahead of other obligations including mortgages.

Risk managers from Germany were the most optimistic in their outlook for delinquencies and the credit supply. Managers in Spain and Portugal remained the most pessimistic, though their outlook has improved since the February survey.

The survey found that banks are using or considering using a wide range of strategies to improve their profitability by targeting higher income and lower risk customers. This is a conservative strategy for difficult economic times as well as a challenge because of the high competition for these customers, the survey said.

More than nine out of 10 respondents target higher-income customers or are likely to do so in the future. Nearly as many respondents (77%) are targeting lower-risk customers or will do so. Some 16% of banks are already offering new products to try to improve profitability, and 69% said that they were somewhat or very likely to do so in the future.
“Innovation is always the most positive outcome of an economic setback, as lenders stimulate the market with new credit products and features that reinvigorate consumer demand,” said Gordon. “What we found slightly disconcerting is that the UK seems to be lagging – no respondents reported that they are currently offering new credit products, though 83% said they were likely to do so in the future. We believe that in the UK, lender uncertainty caused by the current regulatory environment may be slowing innovation.”

See the detailed report with specific results for the UK, the Austria-Germany-Switzerland region and the Iberian peninsula.

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