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European unsecured lending: positive banks drive consumer credit growth

8th December 2005
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Britons are Europe's most indebted consumers.

Outstanding unsecured borrowing per capita in the UK was GBP3,034 in 2004, ahead of the average German consumer with GBP2,037. Does this mean Britons are carefree and 'live for the moment' while the rest of Europe is saving for rainy days? Consumer attitudes to borrowing and saving are crucial to carving out demand for credit, but the banks' approach plays just as vital a role.

The western European consumer credit market is highly varied. At one extreme, the UK consumer credit market is highly competitive and innovative. At the other extreme, the Belgian, Dutch and German consumer credit markets are relatively underdeveloped, lack innovation and are typified by more risk averse banks and consumers.

Outstanding debt per capita in the UK grew by 41% between 2000 and 2004, while it grew by a mere 6.2% in Germany over the same period.

Attitudes towards borrowing in the UK are very positive and the propensity towards saving is generally quite low. But banks' attitude towards consumer credit has been crucial to the market's development. Banks tend to be aggressive in their tactics and offer highly competitive pricing. Moreover, there is a vast range of products available to consumers.

Bank attitudes are one of the most important factors affecting the supply of credit, and thus the development of a consumer credit market. The UK's developed consumer credit market can therefore mostly be attributed to its banks pushing credit products. However, in addition, high consumer confidence in past years as a result of strong economic performance, a buoyant housing market and historically low interest rates, has also helped to increase demand.

Meanwhile, Germany's consumer credit market is developed, but not to its full potential because generally, banks do not focus on pushing consumer credit products. Consumer protectionism and weak economic performance have also restricted consumer credit growth in recent years. If banks tend towards a conservative view of consumer credit they will generally not push credit products as much they could.

As a result, little competition and innovation will take place in the market and demand will not be stimulated. On the other hand, Spain's consumer credit market is achieving rapid growth as banks become highly competitive, more open to pushing credit products and using highly innovative marketing campaigns and product design. In response, consumer attitudes are changing and becoming more open to credit.

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