European Credit Risk Outlook

Transcription

1 November 2011 European Credit Risk Outlook Results of the Third European Credit Risk Managers Survey Best practices in retail financial services more information on

2 Contents 03 Introduction 04 Summary 06Key Findings and Analysis 06 Credit Delinquencies 10 Credit Supply and Demand 14 Interest Rates 15 Consumer Behaviour Toward Credit 19 Risk Management Discipline 23 Respondents Profile 26 About Us

3 E U R O P E A N C R E D I T R I S K O U T L O O K Introduction As FICO and Efma deployed our third European Credit Risk survey, there was increasing pressure on European banks and consumer lenders to restore portfolio growth set against a daunting backdrop: The sovereign debt crisis, Concerns over stability of the Euro and the impacts of debt in Greece, Italy, Spain and Portugal Growing global worries over a double-dip recession These issues were on the minds of the credit risk managers at top banks throughout Europe who responded to the survey to give us a forward-looking picture of the credit market. This report continues to look at credit supply and demand, and also examines the role that changing consumer behaviours may have in the on-going European credit marketplace. Our third report also looks at the manner in which banks are responding to any changes in environment and consumer behaviours, and looks specifically at how the risk management discipline is changing in these challenging conditions. Findings from this survey will in turn help to inform the Risk Managers Advisory Council, a group of European risk professionals formed by Efma and sponsored by FICO, and to enliven discussion at the RMAC meetings. We are grateful to all the executives representing organisations both large and small who took the time to participate in this survey. Over the coming year, watch for new reports from Efma and FICO on these changing market conditions. Mike Gordon Vice President EMEA FICO Patrick Desmarès Secretary General Efma 3

4 Summary FICO and Efma conducted a survey of credit trends in August-September 2011 with risk professionals in Europe. The aim of this survey is to provide a forward view of potential growth and challenges in the granting of consumer credit. Participants included credit-granting institutions ranging from local banks to global institutions. Seventy-two representatives from 26 European countries and 61 companies responded to this third survey. The survey asked participants for their forecast over the next six months. Results of this survey show: Credit risk managers expect a worsening of delinquencies, especially for small business exposures and current accounts, boding poorly for overall economic health. In these areas, more than 4 times the number of respondents predict deterioration as predict improvement. Mortgage performance is also a concern, with 3 times the number of respondents predicting deterioration as predict improvement. The credit gap for consumers and small businesses persists and is worst where delinquency predictions are worst. Consumers are not focused on using credit. Instead, 84% of respondents agree or strongly agree that consumers are trying to save more, and 71% agree or strongly agree that borrowers are more reluctant to seek or use credit. This suggests that growth and revenue expansion for retail consumer banking operations will be particularly challenging. 71% of responders agree or strongly agree that customers are most loyal to the bank that holds their current account (checking overdraft account) while 76% agree or strongly agree that consumers are most concerned with service. This suggests that cross-sell may be possible for banks seeking expansion, but that service levels will have to match increased customer expectations. Credit risk managers have adjusted policy to address the conditions of the last 3 years, and are confident in their ability to control policy. Yet risk managers are significantly less confident in the ability of their policies to address rising unemployment, or sovereign debt crises, with more than 40% of respondents disagreeing or strongly disagreeing that these impacts on the portfolio would be modest. 4

5 E U R O P E A N C R E D I T R I S K O U T L O O K This report shares the key findings for all respondents, and in addition breaks out specific responses by three regions: DACH (Germany, Austria, Switzerland), the Iberian Peninsula (Spain and Portugal) and the United Kingdom. Members of the Efma Risk Management Advisory Council will have access to more detailed of results of survey responses from enterprises in Turkey, Central and Eastern Europe and the Nordics. Because of the marked contrast between the economic scenario in Turkey and that in the rest of Europe there are instances here where we make similar references. The European Credit Risk Managers Outlook was prepared by Efma and FICO. 5

6 Key Findings and Analysis Credit Delinquencies Looking at the banking industry in your region, over the next six months, do you expect: The level of overdrafts to The level of small business loan delinquencies to The level of auto loan delinquencies to Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The level of credit card delinquencies to The level of residential mortgage delinquencies (90 days or more) to 0% 10% 20% 30% 40% 50% 60% As with our previous surveys, credit risk managers expect continued deterioration in overdraft and mortgage performance, and with small business lending delinquency. Four times as many respondents predicted increased delinquency on overdrafts as predicted improvement. For small businesses and credit cards, the ratio is also near 4:1. For auto and mortgage, the ratio is better at 3:1. Mortgages are expected by one of the highest majorities to stay the same or improve, even as 39% of responses expect mortgage delinquency to worsen. Only 12-14% of responses indicate an expectation for decreasing delinquency on any surveyed product. Small business lending is met with the greatest pessimism, and more than half of respondents predict delinquencies will increase. These results are fully in line with the economic context playing out across Europe. 6

7 E U R O P E A N C R E D I T R I S K O U T L O O K DACH Looking at the banking industry in your region, over the next six months, do you expect: The level of overdrafts to The level of small business loan delinquencies to Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The level of auto loan delinquencies to The level of credit card delinquencies to The level of residential mortgage delinquencies (90 days or more) to 0% 20% 40% 60% 80% Responses from DACH are markedly more optimistic than those from elsewhere in Europe. Expectations can best be described as mixed, where the ratio of responses that expect delinquencies to increase to the responses that expect delinquencies to decrease is 1:2 for auto loans; 1:1 for overdrafts; 1:1 for credit cards; 1:2 for mortgages and 2:1 for small business. The greatest concern is for small business lending, while more than half of responses expect to see mortgage delinquencies decrease somewhat. It should be noted that mortgage lending is of lesser importance in Germany than in other regions of Europe. 7

8 Iberian peninsula Looking at the banking industry in your region, over the next six months, do you expect: The level of overdrafts to The level of small business loan delinquencies to The level of auto loan delinquencies to Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The level of credit card delinquencies to The level of residential mortgage delinquencies (90 days or more) to 0% 20% 40% 60% 80% Results from the Iberian Peninsula are again striking in their pessimism. No product is expected to demonstrate improved delinquency performance in any aspect. Expectations are best in one sense for credit cards, because a quarter of responses expect performance to stabilize. No more than 13% of responses suggest this possibility for any other product. Small business expectations are worst, with 87% of responses expecting delinquency to increase, and 63% of responses expecting delinquency to increase significantly. This suggests that the Spanish economy has not yet reached bottom. Mortgage delinquency is also expected to deteriorate by 88% of responses, with 38% of replies expecting a significant increase in delinquency. Mortgage delinquency is symptomatic of the ongoing property markets crisis in Spain. 8

9 E U R O P E A N C R E D I T R I S K O U T L O O K UK Looking at the banking industry in your region, over the next six months, do you expect: The level of overdrafts to The level of small business loan delinquencies to The level of auto loan delinquencies to The level of credit card delinquencies to The level of residential mortgage delinquencies (90 days or more) to Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly 0% 20% 40% 60% 80% Results for the UK demonstrate a fair degree of optimism, especially for overdrafts, where a third of responses expect delinquency to decrease somewhat. Mortgage is subject to the greatest degree of pessimism. In all cases, about two-thirds of respondents expect the situation to stay about the same, which is consistent with a stagnating economy. There remains, however, potential for destabilization if housing market conditions deteriorate or unemployment spikes. The low response from UK lenders to the survey this period may cause results to differ with results from prior periods, and in many cases results also differ with opinions voiced by UK banks in Efma Risk Management Advisory Council meetings. 9

10 Credit supply and demand Looking at the banking industry in your region, over the next six months, do you expect: The approval criteria for common credit & loan products to The average balance on credit card accounts to The volume of consumer Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The aggregate amount of credit requested by consumers to The approval rate of consumer The amount of consumer credit extended by lenders to The volume of small business The aggregate amount of credit requested by small businesses to The approval rate of small business The amount of small business credit extended by lenders to 0% 10% 20% 30% 40% 50% 60% Credit risk managers across Europe expect a credit gap for both small business and consumer lenders over the next six months. While approval rates and criteria for both consumer and small business lending are expected to remain the same by more than half of all responses, almost half of respondents (49%) expect the volume of small business applications to increase somewhat or significantly, and more than half of respondents (51%) expect the amount of credit requested by small business to increase. However, credit granted to small businesses is expected to increase by only 36% of respondents, and is expected to decrease by 28% of respondents. For consumer lending, the volume of applications is expected to increase by 42% of respondents, with the amount of credit requested expected to increase by 47% of respondents. Yet only 28% of respondents expect credit granted to consumers to increase, while 27% of respondents expect credit granted to consumers to decrease. About 45% of respondents expect credit card balances to increase, which makes sense in light of both delinquency expectations and challenges in obtaining new credit. 10

11 R E T A I L F I N A N C I A L S E R V I C E S S T R A T E G I C I N S I G H T S A N D B E S T P R A T I C E S E U R O P E A N C R E D I T R I S K O U T L O O K DACH Looking at the banking industry in your region, over the next six months, do you expect: The approval criteria for common credit & loan products to The average balance on credit card accounts to The volume of consumer Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The aggregate amount of credit requested by consumers to The approval rate of consumer The amount of consumer credit extended by lenders to The volume of small business The aggregate amount of credit requested by small businesses to The approval rate of small business The amount of small business credit extended by lenders to 0% 20% 40% 60% 80% Lenders in DACH continue to display somewhat divergent lending approaches in comparison with the rest of Europe, and are forecasting a credit gap that is especially pronounced for small business lending. Small business credit demand is expected to rise both in terms of the number of applications (44%) and in terms of the amount of credit requested (56%), while credit approval rates are expected to remain the same or decrease somewhat by 78% of respondents. Overall amounts of small business credit are expected to remain the same or decrease somewhat by 66% of respondents. This suggests that business growth in DACH will be challenging under credit constraints, and that start-up businesses may have particular difficulty in securing credit. This could cause entrepreneurs and sole proprietors / self-employed to leverage consumer credit to a higher degree than other consumers. While 55% of respondents expect consumer credit demand to rise, only 22% expect the amount of credit or credit approval rates to increase. This is a less worrisome credit gap, given the region s use of credit. 11

12 Iberian peninsula Looking at the banking industry in your region, over the next six months, do you expect: The approval criteria for common credit & loan products to The average balance on credit card accounts to The volume of consumer Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly The aggregate amount of credit requested by consumers to The approval rate of consumer The amount of consumer credit extended by lenders to The volume of small business The aggregate amount of credit requested by small businesses to The approval rate of small business The amount of small business credit extended by lenders to 0% 10% 20% 30% 40% 50% Credit risk officers in the Iberian Peninsula expect significant decreases in both consumer and small business lending, as well as contraction in credit demand by both consumers and small businesses. Consumer credit approval criteria are expected to tighten (increase somewhat or significantly) by 38% of respondents. Given expectations around delinquency and the general economic malaise in the region, this should be expected, especially given the capital demands that must be met by banks across Europe. Spain continues to have some of the highest unemployment and underemployment rates in Europe, while Portugal is in the midst of economic correction required based on the intervention of the IMF. 12

13 E U R O P E A N C R E D I T R I S K O U T L O O K UK Looking at the banking industry in your region, over the next six months, do you expect: Interest rates for consumer credit to The approval criteria for common credit & loan products to The average balance on credit card accounts to The volume of consumer The aggregate amount of credit requested by consumers to The approval rate of consumer The amount of consumer credit extended by lenders to The volume of small business The aggregate amount of credit requested by small businesses to The approval rate of small business The amount of small business credit extended by lenders to Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly 0% 25% 50% 75% 100% Small business credit granting appears to be at its healthiest in the UK, undoubtedly as a result of focus by economic and banking supervisors to keep credit access open for SMEs. Credit risk officers appear to be expecting growth in credit requests, even as credit granted remains unchanged. For consumer credit, approval rates, criteria and interest rates are expected to remain unchanged, while twice as many respondents expect the amount of credit requested and the volume of credit applications to decrease as expect demand will increase. Together with the expectation by respondents that average balances on credit cards will decrease somewhat, this suggests softening of demand and usage of consumer credit. This bodes badly for the UK economy, as consumer credit availability and usage is believed critical to consumer spending. Again, however, the low response from UK lenders to the survey this period may distort results. 13

14 Interest Rates In your region, over the next six months, do you interest rates for consumer credit to: Increase significantly Increase somewhat Stay about the same Decrease somewhat Decrease significantly 0% 10% 20% 30% 40% 50% 60% Across Europe, interest rates are expected to decrease somewhat or remain unchanged by 55% of respondents, and to increase somewhat or significantly by 45% of respondents. When reviewed with consideration to the geographic location of respondents, we see a close correspondence to local economic climate. For example, all respondents in the UK expect interest rates to stay the same in the next six months, as is appropriate given signals revealed by the Bank of England. Credit risk managers in markets seeking to lessen demand for credit are more likely to expect increases in interest rates, as are respondents in markets like Turkey, where economic authorities are looking to keep economic growth from reaching inflationary proportions. In markets where respondents foresee an increase in interest rates, and where the housing market is in poor shape, an increase in interest rates will dampen housing recovery and will also potentially increase payments for consumers with adjustable rate or indexed loans and mortgages. This can contribute to affordability issues for consumers, and can in turn exacerbate delinquency problems across the full spectrum of credit products. 14

15 E U R O P E A N C R E D I T R I S K O U T L O O K Consumer Behavior Toward Credit Which of the following changes have you seen among your bank s customers? More interested in building their savings More reluctant to borrow money or use unsecured credit More loyal to the bank that holds their deposit/current account relationship Less concerned about becoming delinquent overall Less concerned about becoming delinquent on their mortgage Not True The opposite is true True for some customers True for most customers More likely to mistrust the bank More likely to pay their credit card ahead of other obligations Most concerned with service 0% 20% 40% 60% 80% Across Europe, credit risk managers expect consumers to be more focused on saving (84%), and more reluctant to use consumer credit (71%), suggesting that revenue generation from credit products will be problematic for banks and lenders. There is less clarity surrounding the trends for consumer delinquency behaviors and preferences. 76% of respondents say that most or some consumers are likely to be more loyal to the bank at which their current account resides. This suggests that expansion of relationships with existing customers may be the best path for revenue growth, yet this may be challenging when 46% of credit risk management managers indicate that some or most consumers are more likely to mistrust the bank. Respondents are split on their beliefs about consumer delinquency. 45% believe some or most consumers are less concerned with delinquency overall; 55% believe this is untrue or the opposite is true (consumers are more concerned with delinquency overall). This aligns with overall expectations for delinquency. Similarly, feelings are split on the belief that more consumers are likely to pay credit card obligations ahead of other obligations, with 39% saying this is true for some or most consumers (slightly less than in our previous survey), 13% saying the opposite is true and nearly half (48%) saying that this is untrue. 71% of respondents say some or most consumers are more concerned with service; no respondents believe the opposite to be true. Service focus may be the tool most helpful for restoring bank trust and building loyalty for the bank that holds the current account. 15

16 DACH Which of the following changes have you seen among your bank s customers? More interested in building their savings More reluctant to borrow money or use unsecured credit More loyal to the bank that holds their deposit/current account relationship Less concerned about becoming delinquent overall Less concerned about becoming delinquent on their mortgage Not True The opposite is true True for some customers True for most customers More likely to mistrust the bank More likely to pay their credit card ahead of other obligations Most concerned with service 0% 20% 40% 60% 80% Respondents from DACH largely align to the overall pattern for Europe with respect to their beliefs about consumer attitudes and behaviours. A slightly higher proportion believe consumers to be more interested in building savings (89%) and more reluctant to use credit (89%) than elsewhere in Europe. Only 44% of DACH respondents believe some or most consumers are likely to mistrust the bank. Compared to the rest of Europe, a slightly lower proportion of DACH responders (66%) believe some or most consumers are most concerned with service. Overall, these responses are consistent with those in the last survey, and are consistent with the reputation that DACH consumers have as reluctant users of credit. 16

17 E U R O P E A N C R E D I T R I S K O U T L O O K Iberian peninsula Which of the following changes have you seen among your bank s customers? More interested in building their savings More reluctant to borrow money or use unsecured credit More loyal to the bank that holds their deposit/current account relationship Less concerned about becoming delinquent overall Less concerned about becoming delinquent on their mortgage Not True The opposite is true True for some customers True for most customers More likely to mistrust the bank More likely to pay their credit card ahead of other obligations Most concerned with service 0% 20% 40% 60% 80% Given the dire economic situation in the Iberian Peninsula, it is not surprising that 100% of respondents believe some or most consumers are more interested in building savings and are more reluctant to borrow or use credit. Respondents are split evenly on the question of whether consumers are more likely to mistrust the bank. Only 25% expect some consumers to be pay their credit cards ahead of other obligations. This suggests that cards may be less dominant in the region than in markets like the UK and Eastern Europe. 17

18 UK Which of the following changes have you seen among your bank s customers? More interested in building their savings More reluctant to borrow money or use unsecured credit More loyal to the bank that holds their deposit/current account relationship Less concerned about becoming delinquent overall Less concerned about becoming delinquent on their mortgage Not True The opposite is true True for some customers True for most customers More likely to mistrust the bank More likely to pay their credit card ahead of other obligations Most concerned with service 0% 20% 40% 60% 80% 100% For the UK, the vast majority of respondents do not believe that consumers are more interested in building their savings. 66% expect some or most consumers to be more reluctant to use credit. One-third expect consumers to be less concerned about becoming delinquent, while two-thirds say this is untrue, yet all respondents believe it is untrue that consumers are less concerned about becoming delinquent on their mortgage. In a reversal from the last survey, two-thirds of respondents say that it is untrue that consumers are most likely to mistrust the bank, and all the respondents disagree that consumers are more likely to pay their credit card obligations ahead of other obligations. Only a third expect consumers to be most concerned with service, while two-thirds expect consumers to be more loyal to the bank that holds their current account relationship. As noted earlier, the low response from UK lenders to the survey this period may cause distortion in these results. 18

19 E U R O P E A N C R E D I T R I S K O U T L O O K Risk Management Discipline The effects of unemployment on our portfolio health will be modest We are able to deal effectively with poor-performing mortgages Strongly agree Agree somewhat Neutral Disagree Strongly disagree We can rapidly adapt our credit policy and strategies to deal with economic changes A sovereign debt crisis and/or Eurozone crisis will have little impact on our credit decisions We have made changes in our credit risk management approach since 2008 specifically to soften the impact of an economic downturn We have a more disciplined credit risk management approach compared to 3 years ago We make credit decisions based on a strong understanding of consumer or small business principal debt capacity 0% 20% 40% 60% 80% With the economic challenges being experienced across Europe especially in countries undergoing IMF bail-outs or requiring efforts to redress sovereign debt through deep cuts in overall government spending FICO and Efma thought it was important to understand where credit risk managers were feeling most confident about their capabilities, and where they may still be struggling. Responses indicate that as one might expect, risk managers are most confident in the policies and circumstances under their direct control, and feel that they have been highly responsive to the economic conditions of the last several years. They express more diverse opinion on what the impacts of unemployment, mortgage performance issues and Eurozone conditions will be to their portfolios. In brief, they are confident about their efforts, and less confident about actual results. A high majority of respondents say that they have made changes to deal with the economic downturn since 2008 (77%), that their approach to risk management is more disciplined than 3 years ago (83%) and that they can adapt policy rapidly (79%). Surprisingly, a full 97% say that their credit decisions are made with a strong understanding of borrower debt capacity 36% believe that the impacts of unemployment on their portfolio will be modest, while a slightly higher margin 42% disagree. As shown in the following regional views, overall economic condition of the region is a significant influence on this response. Just 13% disagree that they are able to deal well with poor-performing mortgages, The same proportion of respondents, 42%, agree and disagree that Eurozone conditions will have little impact on their portfolio performance. Clearly again, regional economics influence the answer, as do the responses of individual governments and the tactics taken by local regulators to address both problematic mortgages and other debt conditions. 19

20 DACH The effects of unemployment on our portfolio health will be modest We are able to deal effectively with poor-performing mortgages Strongly agree Agree somewhat Neutral Disagree Strongly disagree We can rapidly adapt our credit policy and strategies to deal with economic changes A sovereign debt crisis and/or Eurozone crisis will have little impact on our credit decisions We have made changes in our credit risk management approach since 2008 specifically to soften the impact of an economic downturn We have a more disciplined credit risk management approach compared to 3 years ago We make credit decisions based on a strong understanding of consumer or small business principal debt capacity 0% 20% 40% 60% 80% In DACH, respondents are again most confident in their control of credit policy, with 100% agreeing or strongly agreeing with their ability to make credit decisions with a strong understanding of borrower debt capacity, and 100% agreeing or strongly agreeing that policy changes made since 2008 will soften the impact of an economic downturn. Similarly, 88% agree or strongly agree that they can rapidly adapt to changing market conditions, and 89% agree or strongly agree that their credit risk management approach is more disciplined than it was three years ago. However, the majority of respondents 67% disagree that the impacts of unemployment will be modest on their portfolios, 66% disagree that the sovereign debt crisis will have little impact on their portfolios, and only 11% think that the sovereign debt crisis would have little portfolio impact. Despite the high degree of rental housing in the DACH region, mortgage is a concern, with 22% of respondents disagreeing that they are able to address poorly performing mortgages. 20

21 E U R O P E A N C R E D I T R I S K O U T L O O K Iberian peninsula The effects of unemployment on our portfolio health will be modest We are able to deal effectively with poor-performing mortgages Strongly agree Agree somewhat Neutral Disagree Strongly disagree We can rapidly adapt our credit policy and strategies to deal with economic changes A sovereign debt crisis and/or Eurozone crisis will have little impact on our credit decisions We have made changes in our credit risk management approach since 2008 specifically to soften the impact of an economic downturn We have a more disciplined credit risk management approach compared to 3 years ago We make credit decisions based on a strong understanding of consumer or small business principal debt capacity 0% 20% 40% 60% 80% As with the rest of Europe, the risk managers of the Iberian peninsula agree that they have appropriate credit policy in place. All respondents say they make credit decisions with a strong understanding of borrower debt capacity, and all say they have adapted policy to match the conditions of the last three years. Most respondents also say that their credit risk management has become more disciplined in practice. However, 25% disagree that credit policy can be adapted rapidly. Naturally, unemployment is a significant concern, with 87% disagreeing or strongly disagreeing that unemployment will have a modest impact on the portfolio. A 63% majority agree that poor-performing mortgages can be appropriately addressed, yet 13% disagree that mortgages are being dealt with effectively. Unsurprisingly, almost two-thirds of respondents disagree that the impacts of the sovereign debt crisis will be modest. These responses are reasonable and appropriately proportionate given the economic realities of Spain and Portugal. 21

22 UK The effects of unemployment on our portfolio health will be modest We are able to deal effectively with poor-performing mortgages Strongly agree Agree somewhat Neutral Disagree Strongly disagree We can rapidly adapt our credit policy and strategies to deal with economic changes A sovereign debt crisis and/or Eurozone crisis will have little impact on our credit decisions We have made changes in our credit risk management approach since 2008 specifically to soften the impact of an economic downturn We have a more disciplined credit risk management approach compared to 3 years ago We make credit decisions based on a strong understanding of consumer or small business principal debt capacity 0% 20% 40% 60% 80% Perhaps due to the low sample size from the UK, the results in this area are somewhat discontinuous with prior periods. From those polled, the UK shares the confidence of the rest of Europe, with 100% agreeing that their credit decisions include strong understanding of borrower debt capacity, and agreeing that their risk management approach is more disciplined than three years ago. 66% agree or strongly agree with their ability to adapt rapidly to changing conditions. Most surprisingly, at least 2/3 of UK respondents believe that neither unemployment, nor sovereign debt, nor poor-performing mortgages will have undue portfolio impacts. Yet the Bank of England is holding interest rates low in response to concerns about extended durations of unemployment, affordability issues especially for mortgages, and the general condition of the housing market in the UK. 22

23 E U R O P E A N C R E D I T R I S K O U T L O O K Respondents Profile Seventy-two individuals from 26 countries completed the third European Credit Risk Managers Survey. Respondents included representatives from smaller institutions as well as global banks, and the majority (77%) are from full-service banks. What is your area of responsability? Check all that apply 70% 60% 50% 40% 30% 20% 10% 0% Credit/ Mortgages Debit Cards Auto Loans Current Accounts Lines of Credit Small Business CIO/ IT CFO/ Finance How many employees does your bank have? Over 100,000 9% 50, ,000 7% 10,001 50,000 31% 1 5,000 44% 5,001 10,000 9% The diversity of size is reflective of the European banking market, and is representative of the Efma membership. 23

24 How many retail customers does your bank have? Over 5 million 29% 1 50,000 9% 50, ,000 7% 250, ,000 9% 2 million 5 million 16% 1 million 2 million 18% 500,001 1,000,000 12% Business orientation of your institution Credit Card Monoline Mortgage 6% Lender 4% Retailer or Finance Company 13% Full-Service Bank 77% Respondents are overwhelmingly affiliated with full-service banks, giving the sample a high degree of homogeneity in business orientation. This means that while there will be regional differences and differences of opinion borne from product diversity, the type of issues experienced by the respondents as full-service banks operating in Europe should be expected to be fairly consistent. 24

25 E U R O P E A N C R E D I T R I S K O U T L O O K In which country are you based? United Kindom 6% Benelux 10% Other European 49% Turkey 11% DACH Region 13% Iberian Peninsula 11% The Benelux area, DACH (Germany, Austria, Switzerland), the Iberian Peninsula (Portugal and Spain) and Turkey were among the top responding regions. In contrast to previous surveys, the UK provided a low percentage of respondents. What region does your bank opérate in? Global 19% National 42% Multi-Country 39% Again, the multi-national focus of respondents reflects the make-up of the European banking structure. Respondents self-identifying as affiliated with multi-national or global enterprises and those that are nationally focused did not respond with significant differences to each other in the previous surveys or in this one. 25

26 About Us FICO FICO (NYSE:FICO), formerly known as Fair Isaac, delivers superior predictive analytics that drive better decisions. As a pioneer in applying mathematics to solve business problems, FICO gives businesses the power to make more effective decisions based on sharper forecasts of consumer behavior. FICO s revolutionary solutions include the leading credit scores as well as leading global solutions for credit account management and fraud management. Most of the world s top banks, as well as leading insurers, retailers, healthcare and pharma companies and government agencies, rely on the analytic advantage of FICO solutions to accelerate growth, control risk, reduce costs and meet regulatory and competitive demands. FICO 5th Floor Cottons Centre Hays Lane London SE1 2QP United Kingdom Tel: +44 (0) Efma Efma, a not-for-profit association formed in 1971 by bankers and insurers, specialises in retail financial marketing and distribution. Today, more than 3,000 brands in 130 countries are Efma members, including over 80% of Europe s largest retail financial institutions. Efma offers the retail financial service community exclusive access to a multitude of resources, databases, studies, articles, news feeds and publications. Efma also provides numerous networking opportunities through work groups, online communities and international meetings. Efma 8, rue Bayen Paris France Tel: +33 (0) For media inquiries on this report, please contact: Peggy Schelter, Catalysis, +44 (0) Fair Isaac Corporation. All rights reserved. This repot should not be reproduced or redistributed, in whole or in part, without the written permission of Fair Isaac Corporation. 26

27 EuropEan CrEdit risk outlook RESULTS OF THE THIRD EUROPEAN CREDIT RISK MANAGERS SURVEY November 2011 Best practices in retail financial services more information on