Since the previous Intrum Justitia and Oliver Wyman report in 2008, Retail and SME credit markets across Europe have been hard hit by the banking and government debt crises.
New lending and growth stagnated across developed European countries, though signs of recovery are now emerging. Non-performing loans are a significant ongoing issue, particularly in Southern European markets.
We observe four key trends that will change European retail and SME credit markets:
- New regulations – covering accounting rules (particularly IFRS 9), Single Supervisory Mechanism, capital and liquidity minima, consumer protection and corporate structures – are increasing funding and operational costs and will potentially reduce revenues
- Digital channels are providing opportunities for lower costs, improved targeting and more interactive data capture when underwriting
- Increased use of 3rd party servicers is enabling banks to extract greater value from their portfolios, particularly in distressed markets
- New entrants, in the form of retailers, digital innovators and P2P lenders, are challenging existing players and increasing competition. In parallel, many banks have focused on extracting value from their existing customer base, rather than enlarging it
The characteristics of successful lenders will depend on the markets in which they operate:
- In distressed markets, winners will be lenders with tools and processes that successfully extract value from their non-performing loan portfolios
- In developed and emerging countries, success will be based on balancing the core competencies of Marketing, Risk Management and Technology to ensure that lessons from the financial crises are incorporated into new practices
- Across all markets, lenders will need to adapt rapidly to new regulations, changing product structures, risk data management and customer communications in ways that preserve profitability
