An Overview to Sub-prime Lending in Western Europe 2007

Table of Contents

• CHAPTER 1 INTRODUCTION
  • Scope of the report
    • Definition of sub-prime individuals
  • Who is the target reader?
  • How to use this report
• CHAPTER 2 THE DEVELOPMENT OF SUB-PRIME LENDING INWESTERN EUROPE
  • Introduction
    • Sub-prime individuals are at the least worthy end of thecredit spectrum
      • There are numerous degrees of sub-prime
      • There are a number of drivers that affect the size ofthe sub-prime population
  • Sub-prime lending began in the US during the early 1990s
    • Sub-prime mortgages were the first product to becomeavailable
    • The mid 1990s saw the inception of sub-prime creditcards
  • Sub-prime lending then appeared in the UK
    • Sub-prime lending made its way over to the UK during themid 1990s
      • Sub-prime credit card lending is also present now
      • Even sub-prime personal loans are available, though to asmall degree
    • The UK is Europe' s most developed sub-prime lendingmarket
      • Moreover, securitization is becoming ever more common
  • Sub-prime lending is now developing gradually in themajority of Western European markets
    • There are a number of factors that can hinder thedevelopment of this type of lending
    • The majority of Western European retail banking marketsare seeing an expansion of sub-prime lending
• CHAPTER 3 THE STATE OF SUB-PRIME LENDING ACROSS WESTERNEUROPE
  • Introduction
  • Sub-prime lending in Western Europe still remains smallon the whole
    • The majority of countries only have a few lenders andspecialists serving the market
    • The degree of development differs across these markets
      • Austria' s sub-prime lending market is highly undeveloped
      • Belgium' s sub-prime lending market is slowly developing
      • The development of sub-prime lending in Denmark isconstrained by bank and consumer attitudes
      • Finland has a small, but reasonably well-known sub-primelending market
      • Because of strict interest rate ceilings, there is asmall and restricted sub-prime market in France
      • Germany' s sub-prime lending market has yet to fulfil itspotential
      • Sub-prime lending is still very much at an emergingstage in Greece
      • Ireland' s sub-prime market is developing quickly
      • Sub-prime lending in Italy is particularly undeveloped
      • The Netherlands has a number of active sub-primelenders, but the market is still small
      • The sub-prime market in Norway is very limited
      • Portugal' s sub-prime market has potential but remainssmall
      • Spain' s sub-prime lending market has much potential forgrowth
      • Sweden' s mainstream lenders tend to cater for thenear-prime, but the rest of sub-prime lending remains very small
      • The UK has a significant sub-prime lending market
  • Mainstream banks continue to maintain conservativeattitudes to lending
    • Most mainstream banks have tightened their lendingcriteria in recent years
    • The majority of mainstream banks remain somewhat riskaverse to individuals with a minor history of credit arrears
    • Virtually all mainstream banks have problems acceptingindividuals with a major history of credit arrears
    • Most mainstream banks do not tend to lend to those witha debt reconstruction on record
  • Yet sub-prime lending markets are changing acrossWestern Europe
    • Ireland is an example of a sub-prime lending market infast transition
      • The Irish lending market has become more competitive
      • The mortgage and consumer credit markets are booming
      • Sub-prime lending is gaining momentum
      • But there are some reputation and regulatory concernsover sub-prime lending
      • GE Money is a leading player in the Irish sub-primemortgage market
      • The Irish sub-prime market is likely to see significantgrowth given that the factors which could inhibit growth in this marketare limited
    • Germany is an interesting sub-prime lending market toconsider for the future
      • Germany' s mortgage and consumer credit markets willimprove over the next five years
      • Sub-prime lending remains very small up to now
      • But the market holds considerable potential, and thereare a few lenders in the sub-prime business
    • Spain and the Netherlands hold significant sub-primelending potential
      • The Spanish sub-prime lending market is likely to growsignificantly in the future
      • The Netherlands is also likely to be a growth market forsub-prime lending
    • Portugal and Greece have potential for expansion, but anumber of factors hold them back
      • Portugal' s sub-prime market is still small but posesgood opportunities
      • The Greek sub-prime sector remains an untappedopportunity, but development may be difficult
• CHAPTER 4 CONCLUSIONS
  • Sub-prime lending will become more common as time goeson
    • Some countries will be more feasible for sub-primeexpansion than others
  • Companies have a number of ways to become involved inthe market
    • Lenders can enter the market themselves or set up aseparately branded subsidiary
    • Non-lenders can also participate in this market
  • Lenders should also be aware of the risks involved insub-prime lending
    • In 2006 and early 2007 sub-prime mortgage firms in theUS began seeing a large number of losses
      • A significant number of sub-prime mortgage firms are nowin financial trouble
      • Such a situation points to lenders who became tooaggressive
    • The UK has also become a more uncertain market
      • Sub-prime lenders in the UK need to ensure they do notmake the same mistakes as those in the US
    • For lenders who view sub-prime lending as too risky,other segments should be investigated
  • European regulation could affect lenders in the future
    • A review of the European Consumer Credit Directive isexpected in 2008
      • But some are wary that it could affect the cost andavailability of sub-prime credit
    • Possible European mortgage market integration is still anumber of years away
      • The European Commission has been pondering mortgagemarket integration for a number of years now
      • Lenders are waiting for the White Paper in September2007
• CHAPTER 5 APPENDIX
  • Supplementary data
    • Supplementary data tables related to Chapter Three: TheState of Sub-prime Lending Across Western Europe
    • Supplementary data tables related to Chapter Four:Conclusions
  • Definitions
    • Balances outstanding
    • Gross advances
    • Sub-prime
  • Research methodology
  • Relevant links
  • Relevant readings
  • Future Readings
  • Datamonitor' s custom research capabilities
  • Ask the analyst
• List of Tables
  • Table 1: A sample of lenders likely to be offeringcredit to sub-prime individuals by country, April 2007
  • Table 2: How has the proportion of customers thatapply to your bank and are declined changed in recent years?
  • Table 3: Would you typically have problems lending tocustomers or reject customers outright who have a minor history ofcredit arrears?
  • Table 4: Would you typically have problems lending tocustomers or reject customers outright who have a major history ofcredit arrears?
  • Table 5: Would you typically have problems withlending to people with debt reconstructions on their record?
  • Table 6: Mortgage and consumer credit gross advancesin Ireland, 2001-2005
  • Table 7: Debt write-off by banks (individuals),December 2001-December 2006
• List of Figures
  • Figure 1: A certain degree of subjectivity is neededin a definition of the sub-prime population because some lenders areinevitably willing to accept greater risk than others, 2007
  • Figure 2: Drivers of the sub-prime population andconsequences, 2007
  • Figure 3: The degree of development of sub-primelending differs greatly across Western European markets, 2007
  • Figure 4: The majority of high street banks in WesternEurope have tightened their lending criteria in recent years, 2006
  • Figure 5: The majority of banks in Western Europeremain somewhat credit averse, 2006
  • Figure 6: Virtually all mainstream banks stay prettymuch clear of customers with a major history of credit arrears, 2006
  • Figure 7: Banks in Western Europe almost always eitherreject or have some problems with lending to people with a debtreconstruction on their record, 2006
  • Figure 8: Both Ireland' s mortgage and consumer creditmarkets have grown significantly in recent years, 2001-2005
  • Figure 9: GE Money clearly targets the sub-primepopulation - among others - for its mortgages, February 2007
  • Figure 10: Banco Primus targets sub-prime andmainstream customers for consolidation loans, February 2007
  • Figure 11: In Datamonitor' s opinion, Germany, Ireland,Portugal and Spain are highly attractive sub-prime lending markets forthe future, 2007
  • Figure 12: The number of debt-write offs by banks hascontinued to increase in the UK, December 2001-December 2006
  • Figure 13: Datamonitor' s core consulting capabilities