European Risk Survey Shows a Rocky Road Ahead
FICO’s latest survey of European credit risk managers with Efma included a set of questions on trends in the European credit market. The answers shine a stark light on the situation for the region’s banks, which can expect staff reductions, bank consolidations and shedding of divisions and portfolios to cope with the spending on regulatory compliance. 71% of respondents predict increased staffing cuts in the banking sector, with nearly half of all respondents predicting a strong increase.
As I reported previously, credit demand and supply will be reduced in almost all markets, but it’s clear that some of the demand is merely being shifted to other outlets, as consumers and small businesses will still need credit to cope with the recession. A startling 88% of respondents say that more small businesses will turn to alternative sources to fund capital, and the same percentage say that more consumers will turn to micro-lending for their borrowing needs. This may not pose a problem right now, but when the economy gets back on track some segment of the borrowing market will have been trained on how to find money without going to the banks.
One new trend worth noting is credit risk decisions will increasingly need to weigh macroeconomic data, as risk managers have long suspected. This is an area FICO has been pioneering with banks across the region, and my colleague David Molyneaux has posted several times on this topic. You can also read more about this in our Insights white paper on counter-cyclical risk management (registration required to download).