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Consumer credit in France in 2004

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					21
Briefing memo
        N°21 - January 2006




    Le Cadran

             Consumer credit in France
             in 2004




                          Le Cadran de COFIDIS
           Consumer credit
           in France in 2004
                French economic growth staged a recovery in 2004, putting
           in its best performance since 2000. Against this much more
           buoyant background, the consumer credit market made steady
           progress.


                             Growth in the credit                                     Growth in the consumer
                             market in 2004                                           credit market
                                                                                      (Outstanding credit in billions of euros)
                                 Growth sustained but not dynamic                                       Outstanding credit   Annual variation
                                                                                      Dec-87                  37,8                -
                             Since 1987, the consumer credit market has enjoyed       Dec-88                  46,1               21,7%
                             continuous, but not linear growth, with very disparate   Dec-89                  52,3              13,6%
                             annual performances.                                     Dec-90                  55,8                6,6%
                             At 31 December 2004, outstanding consumer credit         Dec-91                  55,3               -0,9%
                             totalled 115.5 billion euros compared to 110.7 twelve    Dec-92                  57,6                4,3%
                             months previously, i.e. a progression of +4.3% (+4.7%    Dec-93                  58,7                1,9%
                             in 2003). Average annual progression since 1987 fell     Dec-94                  60,2                2,5%
                             from +6.9% to +6.8%, which appears to emphasise          Dec-95                  63,8                5,9%
                             that the market is stabilising.                          Dec-96                  69,3                8,7%
                                                                                      Dec-97                  74,9                8,0%
                             With a rise in GDP of +2.4%, France performed            Dec-98                  80,8                8,0%
                             considerably better than in 2003. However, for the       Dec-99                  89,5               10,8%
                             13th consecutive year, growth in the consumer credit     Dec-00                  97,8                9,3%
                             market remained clearly higher than that of GDP,         Dec-01                  103,0               5,3%
                             illustrating the growing importance of consumer          Dec-02                  105,7               2,7%
                             credit as a pillar of economic growth.                   Dec-03                  110,7               4,7%
                                                                                      Dec-04                  115,5               4,3%
                                 Consumer credit as a pillar of                       Average annual growth                       6,8%
                                 economic growth

                             More than ever, household consumption, which grew by
                             +2.3%, much higher than the growth recorded in the
                             two previous years (+1.6% in 2003 and +1.8% in 2002),
                             remains the main driving force of economic growth.       In addition, amongst government measures to boost
                             Though the increase in gross disposable income           household consumption, the one concerning the use
                             (+1.9% in 2004 compared to +0.5% in 2003)                of consumer credit validated the predominant role of
                             sustained this household consumption, the French         this type of credit as a support for consumption.
                             also dug deep into their savings, as is shown by the     The tax reduction granted on consumer credit
                             decline in the savings rate.                             (excluding the refinancing of former loans and bank




2   • Le Cadran de COFIDIS - January 2006
                      Growth in outstanding consumer credit in France
                      since 1987 (in billions of euros)
                                                                                                                                                                                                                                 115,5
                      120                                                                                                                                                                                            110,7
                                                                                                                                                                                                       105,7
                                                                                                                                                                                        103,0
                                                                                                                                                                               97,8
                      100

                                                                                                                                                          80,8
                      80

                                                                                                                               63,8
                                                                55,8
                      60

                             37,8
                      40



                       20



                       0




                                                                                                                                                                                                                                         2004
                                1987

                                       1988

                                                1989


                                                                1990

                                                                               1991


                                                                                              1992


                                                                                                             1993


                                                                                                                        1994


                                                                                                                                   1995

                                                                                                                                           1996

                                                                                                                                                  1997


                                                                                                                                                            1998


                                                                                                                                                                     1999


                                                                                                                                                                                 2000

                                                                                                                                                                                            2001


                                                                                                                                                                                                           2002

                                                                                                                                                                                                                          2003
                      Annual variations in outstanding credit since 1987 (as a %)
                      25




                      20



                      15




“
The government
measures to boost
household
consumption
validated the
predominant role
of this type of
                      10



                       5



                       0
                                                               Annual average (6,8%)
                               87/88


                                          /89
                                        88/89


                                                       89/90


                                                                       90/91


                                                                                      91/92


                                                                                                     92/93


                                                                                                                    93/94


                                                                                                                                 /95
                                                                                                                               94/95


                                                                                                                                          95/96


                                                                                                                                                  96/97


                                                                                                                                                             97/98


                                                                                                                                                                       98/99


                                                                                                                                                                                    99/00


                                                                                                                                                                                                   00/01


                                                                                                                                                                                                                  01/02


                                                                                                                                                                                                                                   /03
                                                                                                                                                                                                                                 02/03
                                                                                                                                                                                                     /


                                                                                                                                                                                                                    /




                                                                                                                                                                                                                                                  /
                                                                                                                                                                                                                                                03/
                                                                                                                                                                                                                                   /
                                 /


                                          /


                                                         /




                                                                                        /


                                                                                                       /


                                                                                                                      /


                                                                                                                                 /


                                                                                                                                            /


                                                                                                                                                    /


                                                                                                                                                               /


                                                                                                                                                                         /


                                                                                                                                                                                      /




credit as a support
for consumption.




      “               overdrafts) taken out after 1st May 2004 has
                      therefore contributed towards the more widespread,
                      everyday use of this type of loan. In this context, the
                      French have taken advantage of low rates to use
                      credit.




                                                                                                                                                                                                                                                      3
                                The behaviour of the market in 2004
                                           Personal loans lose momentum.                                         Astonishing growth in permanent
                                  (
                                 +3,5%
                                           With 54.7 billion euros of outstanding credit at             (
                                                                                                       +9,2%
                                                                                                                 loans. In 2004, the permanent loan
                                           31 December 2004, the personal loans market                           segment saw a significant growth of
                                remains the most highly developed, accounting for 47.4%               +9.2%, i.e. 3 points above the average annual
                                of the credit market for private individuals. In 2004,                growth observed in the last ten years. This
                                personal loans saw a progression of +3.5%, well below                 astonishing progression illustrates the instability of
                                the +9.3% average annual growth observed in the last 10               the market, which is still immature.
                                years and the +6.6% growth recorded in 2003.                          French interest in this type of credit is probably
                                Since 1994, outstanding credit on personal loans has                  derived from the fact that it is flexible and carries
                                increased by +143%.                                                   few restrictions.




    “    The personal loans
         market accounts
         for 47.4% of the
         credit market for
         private individuals.
                                Growth in outstanding credit on the various types of loans since
                                1991 (in billions of euros)



                “
                                60
                                                                                                                                                                54,7


                                50



                                40


                                                                                                                                                                26,7
                                30



                                20                                                                                                                              21,8
            Personal loans                                                                                                                                      12,2
            Permanent loans     10
            POS loans

            Other loans          0
                                                                                                                                                                  Dec 04
                                                                                                                                                       Dec 03
                                       Dec 91



                                                Dec 92



                                                         Dec 93



                                                                  Dec 94



                                                                           Dec 95



                                                                                    Dec 96



                                                                                             Dec 97



                                                                                                          Dec 98



                                                                                                                   Dec 99



                                                                                                                            Dec 00



                                                                                                                                     Dec 01



                                                                                                                                              Dec 02




                                                         Focus
                                A stable outstanding credit structure
                                The distribution of outstanding consumer
                                credit between financial institutions and
                                banks is roughly the same as in 2003.

                                At 31 December 2004, 54.7% of outstanding consumer
                                credit was carried by financial institutions, i.e. 63.1
                                                                                                      performance in the POS loans (+10.8%) and other loans
                                                                                                      segments (+11.1%).

                                                                                                      In 2004, the outstanding credit carried by the banks
                                                                                                      increased by +1.5%. The astonishing +68% growth in
                                                                                                      the permanent loans segment is explained by the
                                billion euros, compared to 45.3% by the banks                         aggressive policies adopted by the banks in a market
                                providing a broad range of services.                                  that they have long neglected in favour of the personal
                                                                                                      loans market.
                                The specialist establishments have slightly                           Today, in the consumer credit market, personal loans
                                increased their lead (+1.4 point).                                    account for 70% of outstanding credit carried by the
                                At 31 December 2004, they recorded an increase of                     banks.
                                +6.8% in their outstanding credit, demonstrating a solid




4   • Le Cadran de COFIDIS - January 2006
Growth in outstanding credit by type of loan
(in billions of euros)
                                 Personal loans     Permanent loans              POS loans             Other loans
 Dec 91                              22,9                    7,8                   13,6                   11,0
 Dec 92                              22,3                   10,0                   14,9                   10,4
 Dec 93                              21,9                   14,8                   12,2                    9,5
 Dec 94                              22,5                   14,7                   14,5                    8,5
 Dec 95                              26,2                   15,2                   14,2                    8,3
 Dec 96                              28,3                   16,9                   15,6                    8,6
 Dec 97                              31,2                   18,6                   16,1                    9,0
 Dec 98                              35,3                   20,1                   17,1                    8,4
 Dec 99                              40,5                   21,7                   19,4                    8,9
 Dec 00                              43,9                   23,1                   20,8                   10,0
 Dec 01                              47,2                   24,0                   21,1                   10,8
 Dec 02                              49,6                   24,3                   19,9                   11,9
 Dec 03                              52,9                   24,5                   21,3                  12,0
 Dec 04                              54,7                   26,7                   21,8                  12,2
 Growth 04/03                         3,5%                   9,2%                   2,3%                   1,7%
 Growth 03/02                         6,6%                   0,6%                   7,1%                   1,3%
 Growth 04/94                       143,1%                  81,6%                  50,3%                 43,5%
 Av. annual growth. (10 years)        9,3%                   6,2%                   4,2%                   3,7%



            A disappointing year for POS loans.                             Stability of other forms of credit.
  (
 +2,3%
            After the +7.1% growth observed in 2003,                 &
                                                                    +1,7%
                                                                             The segment for other forms of credit
            growth in the POS loans market in 2004 was                       increased by +1.7% in 2004, compared to
disappointing. The increase of only +2.3% over the year            +1.3% in 2003, and has recorded an average
was well below the average annual growth recorded over             annual growth of +3.7% since 1994, i.e. a rise of
the last ten years (+4.2%). The market has not taken full          +44% over 10 years.The market is carried mainly by
advantage of the very steady improvement in the new                the Lease with Option to Purchase (LOP) sector, in
car market (+0.2% in 2004 compared to -6.3%                        which outstanding credit has grown by +26%, while
and -4.9% in 2003 and 2002).                                       outstanding credit linked to advances on debit
At 31 December 2004, outstanding credit on POS                     accounts or other cash flow loans (including deferred
loans was 21.8 billion euros, i.e. a progression of                repayments linked to the use of payment cards) has
+50% since 1994.                                                   stagnated or declined.




Weight of the various                                              Weight of the various
types of loans in the                                              types of loans in the
outstanding credit carried                                         outstanding credit carried
by the banks                                                       by financial institutions

                                                                                                                           Personal loans
17%                                                                5%                                                      Permanent loans
                                                    71%
                                                                                                                     29%
                                                                                                                     2     POS loans
6%                                                                                                                         Other loans




6%                                                                 29%

                                                                                                                     3
                                                                                                                     37%




                                                                                                                                             5
                                    A lender for every type of loan

                                         Though global outstanding consumer                    The banks delegate the distribution of
                                         credit is relatively well spread out between          POS and permanent loans.
                                         banks and financial institutions, there are
                                         considerable disparities according to the         However, the differences between the banks and the




     “
                                         types of loan.                                    financial institutions needs to be placed in context.
         "POS loans and                                                                    Today, the major banks form part of the main share-
         permanent loans            67.1% of the 54.7 billion euros of outstanding         holders in the financial institutions. They therefore
         are mainly                 credit generated by personal loans are distributed     partially outsource the distribution of POS loans and
         dispensed by               by the banks, while 84.9% of POS loans are granted     permanent loans, which has become a separate
         financial                   financial institutions. Permanent loans, which are      sector of activity.




                   “
         institutions."             mainly dispensed by financial institutions, account
                                    for only 23% of global outstanding credit. Finally,
                                    the “other loans” sector is mainly the domain of the
                                    banks (nearly three out of every four loans).




                                    Distribution of outstanding credit between banks and
                                    financial institutions (as a %)

                                                             67,1%                                        32,9%                  Personal loans
           Banks
           Financial institutions           %
                                        12,5%                                    87,5%                                           Permanent loans


                                        15,1%                                    84,9%                                           POS loans


                                                                 73,7%                                      26,3%               Other loans


                                                    45,3%                                    54,7%                               Total outstanding credit


                                    0              20                40               60             80              100




6   • Le Cadran de COFIDIS - January 2006
                               Growth in outstanding credit on the various types of loans
                               in banks and financial institutions
                         100

                                                        68,0%


Banks                    50
Financial institutions


                                                                                10 8%
                                                                                10,8%               11,1%
                                                                                                    11 1%
                                              5,9%
                                              5,9%                                                                    6,8%
                                                                                                                      6 8%
                                       2,3
                                       2 3%
                                         3%                     4,0%
                                                                4 0%                                           5%
                                                                                                                %
                                                                                                             1,5%
                          0
                                          s
                                       Personal loans       anent loans
                                                        Perma                   l
                                                                            POS loans          Other loans          Total
                                                                                                3%
                                                                                             -1,3


                                                                          -28,3%




                               Growth in outstanding credit according to the types
                               of loans (in billions of euros)
                                                                           Banks                                            Financial institutions
                                                            2003           2004         Progression 04/03    2003                   2004             Progression 04/03
                               Personal loans                35,9           36,7               2,3%          17,0                   18,0                    5,9%
                               Permanent loans                2,0            3,3              68,0%          22,5                   23,4                    4,0%
                               POS loans                      4,6            3,3             -28,3%          16,7                   18,5                   10,8%
                               Other loans                    9,1            9,0              -1,3%           2,9                    3,2                   11,1%
                               Total                         51,6           52,4               1,5%          59,1                   63,1                    6,8%
                               Market share                  47,7%          45,3%               -            52,3%                  54,7%                    -




                               Glossary

                                                   Focus
                               The personal loan: an instalment loan (the
                               amount of the loan, the monthly payments and
                               repayment period are fixed) that is related to a
                               particular purchase. The borrower uses the funds
                               freely and makes the agreed monthly payments for
                               a fixed period known in advance.
                                                                                               The permanent (or revolving, or renewable)
                                                                                               loan: a sum of money placed at the borrower’s
                                                                                               disposal that he can use totally or partially at any
                                                                                               time. The key feature of this type of loan is that it
                                                                                               can be “reconstituted”. A proportion of the monthly
                                                                                               repayments is used to rebuild the customer’s reserve,
                                                                                               i.e. to build up the amount of credit available every
                               The POS loan: an instalment loan intended solely                month.
                               to finance the purchase of a particular asset (or
                               service) mentioned in the loan contract.                        Other loans: bank overdrafts, deferred repayments
                                                                                               linked to the use of payment cards, Lease with
                                                                                               Option to Purchase (LOP).




                                                                                                                                                                         7
Conclusion
          At 31 December 2004, outstanding consumer                      With 54.7 billion euros in outstanding credit
          credit stood at 115.5 billion euros, i.e. growth               at 31 December 2004, the personal loans
    of +4.3%.                                                     market remains the most highly developed,
    2004 confirmed the role of consumer credit as a                accounting for nearly half the credit market for
    support to household consumption and therefore to             private individuals.
    economic growth.
                                                                          54.7% of outstanding consumer credit was
          Amongst government measures to boost                            carried by specialist establishments, i.e. 63.1
          household consumption, the one concerning               billion euros. The specialist establishments have
    the use of consumer credit validated the                      increased their lead in the finance market for private
    predominant role of this type of credit.                      individuals.




                                 Sources : ASF, Banque de France, INSEE
                                                                                                                            Photographis : Barbara Grossmann




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