Consumer credit in France in 2005

Document Sample
Consumer credit in France in 2005 Powered By Docstoc
Briefing memo
       n°23 - September 2006

   Le Cadran

            Consumer credit in France
            in 2005

                        Le Cadran de Cofidis
            Consumer credit in France
            in 2005
              Since 2001, the consumer credit market has seemed to stabilise at an
           annual growth rate of around +4%. The exceptional increase in outstanding
           credit in 2005 illustrates the growth potential of this still fluctuating market.

                              Growth in the credit                                       Growthintheconsumer
                              market in 2005                                             creditmarket
                                   An outstanding performance                                              Outstanding credit   Annual variation
                                   strengthened by favorable                             Dec 87                   37,8                -
                                   background.                                           Dec 88                   46,1              21,7%
                                                                                         Dec 89                   52,3             13,6%
                              At 31 December 2005, outstanding consumer credit           Dec 90                   55,8               6,6%
                              stood at 124.8 billion euros compared to 115.5 in          Dec 91                   55,3              -0,9%
                              2004. The consumer credit market put in its best           Dec 92                   57,6               4,3%
                              performance for five years in 2005; up by +8.01%,          Dec 93                   58,7               1,9%
                              it beat the annual average recorded since 1987             Déc 94                   60,2               2,5%
                              (+6.9%). This market, which was thought to have            Dec 95                   63,8               5,9%
                              reached maturity, managed to find new development          Dec 96                   69,3               8,7%
                              opportunities, primarily through diversification           Dec 97                   74,9               8,0%
                              (the advent of consolidation loans) or the offering        Dec 98                   80,8               8,0%
                              of particularly low rates (below 3%). Against this         Dec 99                   89,5              10,8%
                              background, the French were quick to reap the benefits     Dec 00                   97,8               9,3%
                              of an ultra-competitive market. Consumer credit, now       Dec 01                  103,0               5,3%
                              commonplace, has become a part of their everyday           Déc 02                  105,7               2,7%
                              life. As a result, outstanding consumer credit has risen   Dec 03                  110,7               4,7%
                              sharply for the 14th consecutive year and is bolstering    Dec 04                  115,5               4,3%
                              economic growth.                                           Dec 05                  124,8               8,0%
                                                                                         Average annual growth                       6,9%
                                   Consumer credit: a trump card for
                                   economic growth.

                              This result has come about in a mixed economic             The savings ratio stood at 15.2% in 2005, down
                              environment. Despite almost static purchasing              for the third year running. In 2005, consumer credit
                              power, stagnating salaries and soaring petrol prices,      represented 7.3% of GDP (compared to 7% in 2004)
                              household consumption has remained dynamic. In             and more than 13% of household consumer spending.
                              order to maintain their standard of living, the French     Drawing on savings and resorting to credit enabled the
                              have not hesitated to buy on credit and dip into their     French to go on consuming and thus spare the country
                              savings.                                                   an economic recession.

2   • Le Cadran de CoFIDIS - September 2006


consumer credit
has risen sharply
for the 14th
consecutive year

and is bolstering
economic growth.

                    Governmentals measures to boost credit.

                    After the tax credit granted on consumer credit
                    interest in 2004, the government, conscious of the
                    preponderant role that credit plays in economic
                    growth, discussed the introduction of top-up mortgages
                    and lifetime mortgages in France. These two products,
                    intended to develop access to credit and encourage
                    consumption, will become available in 2006.

                              Market performance in 2005
                                        A resurgence of personal loans                              Revolving credit slows down
                                 È      Following a modest rise in 2004, personal
                                                                                             È      Following growth of +9.2% in 2004, the
                               +7,7% loans have resumed their vigorous                     +4,3% revolving credit market grew by +4.3%
                              growth. At 31 December 2005, their outstanding              in 2005, below the annual average of the past ten
                              credit amounted to 59 billion euros, up by +7.7%            years (+6.3%). This blip points up the instability of a
                              compared to +3.5% in 2004. This advance is                  still young market.
                              explained by the record low interest rates offered by       At 31 December 2005, the total revolving credit
                              the credit institutions - below 3% - and, above all,        outstanding amounted to 27.9 billion euros,
                              by the boom in consolidation loans. Personal loans,         representing almost a quarter of all consumer

                              representing 47% of consumer lending, confirmed             lending.
                              their market leader status.

         With 23.2 billion
         euros outstanding,

         the purpose loans
         market showed        Growthinoutstandingcreditonthevarioustypesofloans
         dynamism.            since1991(inbillionsofeuros)

                              A stable structure of outstanding credit
                              The outstanding credit structures of                        The specialised lending companies have a more balanced
                              the general banks and the specialised                       outstanding credit structure. Revolving credit has shown the
                              institutions are very disparate, with each                  lowest increase (+4.3%) but remains the slightly predominant
                              lender having its speciality.                               element in the specialised companies’ outstanding credit. The
                                                                                          share of purpose loans and personal loans remains more or
                              Personal loans still occupy a pre-eminent position in the   less the same as in 2004, with each representing almost 30%
                              banks’ outstanding credit, with almost 38 billion           of the specialised institutions’ outstanding credit.
                              euros outstanding at 31 December 2005, up by +6.1%
                              compared to 2004. Revolving credit and purpose loans        The differences between the banks and the other financial
                              have only a small share. The other loans segment of the     institutions need to be put into perspective. Today, the
                              banks’ outstanding credit leapt by +22.3% thanks, inter     big general banks are among the main shareholders of
                              alia, to advances against accounts receivable.              the specialised institutions. So they are, to some extent,
                                                                                          outsourcing distribution of purpose loans and revolving credit.

4   • Le Cadran de CoFIDIS - September 2006
                                   Personal loans   revolving credit        Purpose 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
Dec 05                                 59,0              27,9                  23,2                   14,7
Growth 05/04                            7,7%              4,3%                   6,4%                 20,2%
Growth 04/03                            3,5%              9,2%                   2,3%                  1,7%
Growth 05/95                          125,0%             84,0%                 63,0%                  77,0%
Average annual growth (10 years)        8,4%              6,3%                   5,0%                  5,9%

        Purpose loans perform well                                        Other loans surge forward
  È     With 23.2 billion euros outstanding, the
                                                                  È       other loans showed exceptional growth,
+6,4% purpose loans market showed dynamism.                      +20,2% reaching 14.7 billion euros of outstanding
Having been disappointing in 2004, this market                  credit. After two years of tentative growth
grew by +6.4% in 2005, i.e. 1.4 points above the                (under 2%), other loans were up by +20.2%,
annual average for the past ten years.                          well above the average annual growth rate of the
Purpose loans boosted the automotive market,                    past ten years (+5.9%). The deferred payment
up by +3% in 2005. Since 1995, the purpose loans                associated with the use of payment cards and leases
market has grown by +63%, the lowest increase of                with an option to purchase contributed significantly
any type of consumer credit during that period.                 to this growth.

typesofloaninthe                                           ofloanintheoutstanding
outstandingcreditcarried                                     creditcarriedbythe
bythebanks                                                    specialisedinstitutions

                              A lender for every type of loan
                                  In 2004, consumer credit was                        The specialised institutions’ virtual monopoly of the
                                  provided mainly by specialised                      revolving credit market strengthened in 2005, with
                                  companies, a trend which became                     more than 90% of the business. The outstanding

                                  more pronounced in 2005.                            credit for this type of loan does not exceed 28
                                                                                      billion euros, however, i.e. less than 25% of the total
                              In 2005, the specialised lending companies              outstanding consumer credit.
         The specialised
                              distributed 55.9% of the outstanding consumer
                              credit, compared to 54.7% in 2004. This increase        In 2005, as in 2004, the specialised institutions
         virtual monopoly
                              in market share is explained, inter alia, by the boom   provided 85% of the purpose loans.
         of the revolving
                              in consolidation loans granted primarily by the

         credit market
                              specialised institutions.                               The only segment in which the specialised
                                                                                      institutions lost ground to the general banks was
         in 2005.
                              Although the general banks, with a market share of      other loans, with the latter holding more than 75%
                              64.2%, are still the main beneficiaries of the upturn   of the market.
                              in personal loans, the specialised institutions have
                              experienced higher growth in this segment.


6   • Le Cadran de CoFIDIS - September 2006


                                 Banks                         Specialised companies
                     2004        2005       growth     2004           2005             growth
                                            05/04                                      05/04
 Personal loans      35,7        37,9         6,1%     19,0            21,1            10,9%
 Revolving credit     2,6         2,6         2,1%     24,2            25,3             4,6%
 Purpose loans        3,1         3,5        10,3%     18,7            19,7             5,7%
 other loans          9,1         11,2       22,3%      3,1             3,6            14,0%
 Total               50,5        55,1         9,1%     65,0            69,7             7,2%
 Market share       45,3%        44,1%                 54,7%           55,9%


The personal loan: an instalment loan (the              The permanent (or revolving, or renewable)
amount of the loan, the monthly payments and            loan: a sum of money placed at the borrower's
repayment period are fixed) that is related to a        disposal that he can use totally or partially at any
particular purchase. The borrower uses the funds        time. The key feature of this type of loan is that it
freely and makes the agreed monthly payments for a      can be "reconstituted". A proportion of the monthly
fixed period known in advance.                          repayments is used to rebuild the customer's reserve,
                                                        i.e. to build up the amount of credit available every
The purpose loan: an instalment loan intended           month.
solely 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).

          The dynamism of household consumption,
          bolstered by consumer credit, has enabled the
    country to avoid an economic recession. As a budget
    management tool, consumer credit thus provides
    everyday support to French households.

           At 31 December 2005, the outstanding
           consumer credit amounted to 124.8
    billion euros, up by +8.01%. The average annual
    growth over the past ten years has stabilised at
    around +7%.
                                                                       Having resumed their dynamic growth,
                                                                       personal loans are now approaching 60 billion
                                                                euros of outstanding credit. Against all expectations,
                                                                other loans, boosted by the deferred payment
                                                                associated with payment cards and leases with an
                                                                option to purchase, are really taking off.

                                                                      The specialised institutions are stamping
                                                                      their leadership credentials on the consumer
                                                                lending market: at 31 December 2005, they held a
                                                                55.9% market share and provided nine out of every
                                                                ten revolving credit facilities.
                               Sources : ASF, Banque de France, INSEE

                                 Service Communication
                                  Parc de la Haute Borne
                     61, Avenue Halley - 59667 Villeneuve d’Ascq Cedex
                               Tél.: 00.33.(0)