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RPT-Fitch: France's Consumer Loan Market to Remain under Pressure
February 10, 2014 / 9:32 AM / 3 years ago

RPT-Fitch: France's Consumer Loan Market to Remain under Pressure

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Feb 10 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says France's consumer loan market will remain under pressure in 2014, both in terms of origination volumes and assets performance, as long as unemployment remains high and household confidence continues to be low. This is despite recent measures to strength consumer protection and deleveraging constraints on originators.

All else being equal, the regulatory changes on consumer protection (Lagarde law published in May 2011) and the deleveraging constraints on originators should induce only a slight improvement of the intrinsic credit quality of new loans. The constraints on originators may serve to exclude less credit- worthy borrowers from the market through a tightening of underwriting criteria while consumer protection will mainly impact high-risk products (i.e. products more exposed to borrower's over-indebtedness) such as revolving loans. Additionally, the discussions underway in the French Parliament on a new consumer law should also contribute to preventing over-indebtedness but the impact is expected to be limited to high-risk products.

Overall, Fitch does not view the aforementioned measures as being sufficient to offset the weak economic environment in France, thus leading the agency to believe that the performance of the French consumer loans will remain under pressure.

The regulatory changes and weak economic environment have also affected origination volumes, as seen in the last week publication from the Association Francaise des Societes Financieres (ASF), supporting Fitch's view that the French consumer loan market will remain subdued. ASF figures showed that consumer loan origination in 2013 declined for the fifth year over the last six years. More importantly, they showed a 22% fall from the 2007 peak to EUR34.8bn in 2013.

In particular, loans for the purchase of new vehicles (10% of total loan production in France in 2013) dropped 8.1% in 2013 (new vehicles sales in France dropped 5% over the same period). Equipment and home improvement loans also suffered in 2013, by falling 6.5%. Not surprisingly, among all sub-segments, revolving loan facilities' origination experienced the sharpest decline since 2007 by falling for the fifth consecutive year (-3% in 2013, -36% since 2007), which however benefited personal loans which increased 3.3% in 2013 to EUR 11bn.

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