Credit market of india

7/28/2019 Credit market of india

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Presentation

on

Unsecured Personal Loan(UPL)Market

Nomsa Motshegare NCRCEO

andJohn Symington Compliance & RiskResources (Pty) Ltd


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M k t id ti M k t h t d

S i l f V l

t d

Introduction

Ideal market conditions Need for Research Macro marketconsiderations

Credit market analysis

Credit supply factors

Social factors

Observations

Regulatory andsupervisory tools

Market changes reportedGrowth in UPLChanges in UPL product Term

ValueReview of impact on consumersDetermine what action to take

The study has focused specifically on unsecured personal loansUnsecured personal loans (UPL) - This refers to loans which are repayable over a period of time

in installments, where there is no security that the credit provider can rely on to recover their debt if

repayments are not made.

For the purposes of this study, other forms of unsecured credit (such as credit cards or overdrafts)

have not been considered.


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Research

NCR workshops Portfolio Committee 2 May

Written findings report May 2012

Facilitate understanding of the

findings Survey reports

Detailed

Summary

Desk top research

Interviews with credit providers -10, multiple

sessions

Consumers

Other Regulators 1 workshop

Industr associations 3 worksho sFocus groups - reliance on other research

Referencing of other surveys conducted

Analyses of other recognised data

Project Overview

Information to follow for report in May 2012 4 Credit Providers batch extracts of the customers credit bureau profiles with the assessments and

data held on file FinScope National Surveys 2008 to 2011 analyses

Credit agreements analyses

Disaggregate factors and drivers

Further study planned

Retail and smaller lenders

3Compliance & Risk Resources


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Eff i l i

IdealMarketConditions

Condition Considerations

Healthy suppliers Credit roviders reflectin ositive rowth rofit and reserves Product mix

Healthy competition, betweencredit providers and sectors

Variety of suppliers and market niches/segments

Broad geographical footprint

Access to fundin for smaller credit roviders

Scale of operations large vs. small

Informed consumers Numerous information and education initiatives Challenges in achieving real changes in consumerbehaviours

Effective regulation NCA inplace Some gaps in regulations being addressed

Effective supervision NCRin place and consumer protection mandate established

Gearing ofNCRto next phase ofdevelopment

Improving credit health ofconsumers

Increased employment and improving household income to debt ratios

Substantial level of impaired performance reflected at credit bureaus not

only a function ofdebtservicing


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Cred

it

Portfoli

o

Considerations

CreditProduct

Overallgrosslendingbook

Considerations

Steady increase over the last year to Dec 2011 = 9.0% (NCR statistics)

Higher than inflation growth Structural change with growth in unsecured lending

Mortgages book Constrained growth over the last year to Dec 2011 =4.0% (NCR statistics)

Mortgage lending less attractive to credit providers Legal uncertainty in terms of risk mitigation options Debt review process challenges Housing market demand, no title deeds in informal, prices, Loan to value ratios risk of equity less than outstanding mortgagebalances Basel III Capital and liquidity considerations Contracting for long terms 20 years, at fixed, invariable price with limitedscope to

reassess and reprice for current and changing risk profiles

100% now not generally provided

Unsecured personal loans book


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Stron

g growth over the last year to Dec 2011 = 53.1% (NCR statistics,includes credit providers not previously reported)

Growth off a small base Higher margin than secured products Effective pricing for risk, shorter terms Ease of loan advance



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Mortgages growth

Unsecured credit growth

UPL can not be

Structural change in the market


Cred

it

Marke

t

Analysis

Mortgages remain thedominant credit category

Business opportunities in UPL


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Cred

it

Marke

t

Analys

is

UPL

Year on Year Growth

Number 3.1%

Rand value 52.1%

0% 20% 40% 60%

Strong growth in loan values granted

Growth in number of accounts relatively low

Indication of average balance of loans granted increasing Consolidation of loans impact not quantified as yet


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s

Millio

ns

Cred

it

Marke

t

Analys

is

UPL

4.0

Number UPL Applications vs Approvals

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Mar 10 June 10 Sept 10 Dec 10 Mar 11 June 11 Sept 11

Applications

Approved

Demand for credit reflected in the applications for UPLs

Different profiles according to different organizations Business models / strategy Ratio of approvals to applications made overall increase over the year

Loan approval to application trend 55% in Q1 2010 to 57% in Q4 2011


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Some credit providers increasing others decreasing

Note: not all approvals are taken-up8

Compliance & Risk Resources


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R100k

Cred

it

Marke

t

Analys

is

UPL

Majority of UPL still in < R15k category

Steady decline in < R15k category as a proportion of overall

UPL book - Growth in other categories

Spike in R60k R100k Recent relatively strong growth

Lending in > R150k not significant


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Billio

ns

Cred

it

Marke

t

Analysis

UPL

2.5

Analysis of UPL Granted According to Loan Size Across TermCategories

2.0

1.5

1.0

0.5

0.

0 < 6 712 1318 1924 2530 3136 3748 4960 >60

R0R15 R16KR30 R31R45 R46KR60 R70K R100 R101K R150 R151K R180 > R180K

Shorter term made up of smaller loans

Longer term made up of larger loans

Majority of loans written in R31k to R180k categories

Growth in larger loans

Installment affordability focus of consumers


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Cred

it

Marke

t

Analys

is

UPL

Rates reflect gross income without cost allocation

Range of prices offered by credit providers

Low end average Upper end average

Pricing for risk

Determinants of risk

Price insensitive product in some categories

Consumer considerations

30.0%

25.0%

20.0%

15.0%

10.0

%5.0%

0.0% Interes

t

Ratesp

er

Loan Size

25.7% 26.2%23.1%

21.7%19.7%

16.1% 15.8%


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R fl j it f i t t

13.7%

23.5%

Revenue

flowsmajority

frominterest

Significant contributions from

Initiation fees

Service fees

Significant contribution from credit life

Cross subsidization

Consolidation

11

Compliance & Risk Resources


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Cred

it

Marke

t

Analys

is

UPL

Caution in relying on the above picture Credit provider statistics on the basis of what consumers

indicate at the time of entering into an agreement

Range of responses from credit providers

Indications are that credit is used for both consumption and wealth creation purposes

Usage varies at different levels of the market Consumer level research will be required to determine usage profile

Consolidation could be due to positive lower cost alternate as well as debt stress


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40%

75.2

%

73.9

%

74.9

%

76.1

%

74.8

%

72.6

%

71.2

%

73.3

%

73.4

%

74.8

%

75.7

%

76.9

%

76.2

%

75.9

%

75.4

%

UP

L

Performanc

e

Book

90%

Unsecured credit book

90%

80% 80%

70% 70%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

Rand Value Number

.6%

.7%


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70.

78.

UPL Book Reported as Current 13Compliance & Risk Resources


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s Overdue >120 dayss Overdue >120 days

R16k

Billio

ns

Billio

ns

UP

L

Performanc

e

Book

R30

R25

R20

R15

Age Analysis per AgreementSize

Overdue >120

days Overdue120 days

Overdue 90

days

R40

R35

R30

R25

R20

Age Analysis per Income ofClients

Overdue >120

days Overdue

120 days

Overdue 90

days

R10

Overdue 60 daysR

15

Overdue 60 days

R 5 Overdue 30

days

R 10 Overdue 30 days

R 5R 0 CurrentR

0

Current

September 2011 statistics

Level of overdues in smaller loan categories

< R15k R16k R30k


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Analysis of income categories

Overdues relatively high highest in R3,5k to R15k

categories

Longer term balances relatively low

New credit granted lag effect

Education campaign should focus on middle to lower income



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Cred

it

Suppl

y

Factors

Factors Considerations

Compliance Structure and operational culture Agreements, disclosures, affordabilityassessment

Credit Provider

Categories

Infrastructure andresources

Scale Access tofunding

Traditional Bank

Micro-Lending

Risk management frameworks and processes andsophistication

Bank

Busine

ssmotive

Paymentsystem

Marketing

to consumers Footprint

Return on

investment /equity, foreignfunding sources Business model bank, microlending bank,microlender, other Advent of NCAand trend settingled the way tofurther business re


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Risk management frameworks and

L l l i

UPL

Distinctionbetweenpoverty

andaffordability isrequired

Categoriesof credit

provider affected differently by payments system Pin and card practice Implications of debt review process with payments viaPDAs

Marketing activity on unsecured lending Volume of credit bureau enquiries

Micro-Lender

Retail Lender

Small Lender

Unregistered

Informal

Level playing

field

considerations

require attention

Credit Comprehensive current credit information at credit bureausassessment andextension

Validation of consumer income and expenses Ability of credit providers to provide information to credit bureaua



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Interi

m

Findings

Findings to Date Commentary

Credit growth: Overall gross debtors book reflects steadygrowth 9%

yony, which is higher than inflation Strong growth in UPL off a small base, nowrepresents8% of overall lending book

Restrained growth in secured lending dueto structuralconsiderations

Increasing level of UPL values reported ascurrent

Information furnished by credit providers has notbrought immediate overall industry level lendinggrowth concerns to light

The diversified lending portfolios of large banks is arisk mitigant at organisational level

Differentiation between categories of credit providersis required to understand category determinants

Monitoring of consumer indebtedness where UPLs areadvanced at the margin to provide credit marketindicators

Changing Market: Project has focused attention of stakeholders in anintegrated

Complex market drivers

The responsibilities of regulatory /supervisoryauthorities overlap

Reactive and disparate response tochanging market

Savings versus credit use

approach to understanding and addressing appropriate

response

Integrated regulatory / supervisory response frameworkwill promoteholelistic view of the market

Review of savings incentives is required


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Restrained growth in secured lending due to structural understand category determinants

C l k d i

C dit li d f lti l i tit ti i

Credit supply: Different organizations, business modelsand deliveryplatforms

UPLs offered have contributed to access to

credit Credit supplied from multiple institutionsincreasesthe risk of default

Commercial credit not suitable for allconsumers

Segmentation of credit providers is needed to assesscredit supply from a consumer protection perspective

Analysis of supply and demand factors according tostrata and recommendations for appropriate accessand relevant interventions

Consideration should be given to alternate supportmechanisms guarantee fund, support, social lending



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17omp ance s esources


Credit is being used for bothconsumption and asset/wealthbuilding

credit survey to determine consumer creditusage and the implications thereof

Loan term:There has been some lengthening of the term

over which

Consideration should be given to introducingconsumer protection where lending is undertaken atthe margin

Consumer demand: Knowledge levels and inappropriateconsumerdecision drivers contribute to unhealthycredit uptake

Lack of understanding of the implications of

Segmentation of consumers is needed to assess thecredit supply and usage thereof

Segment appropriate education, starting at school level Monitoring for consumer protection will provide ongoingindication ofconsumer behaviour

Financial burden: Factors beyond credit consumptioncontribute to

Factors that impact consumers that take out creditat the margin should be monitored Creditperformance, write offs, ageing

Reckless lending: Input provided by industry stakeholders

indicates thatreckless lending is a factor that requires

ongoing focus

Limited review of credit agreements indicates that thecredit providers that participated in the study applied

A study into the overall level of consumerindebtedness would provide the macro viewneeded

Rules based guidelines are not recommended A

Interi

m

Findings

affordability, but these are not consistent across credit

providers


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Interi

m

Findings


Cost of credit: Disclosure of cost of credit requires attention Cost of credit positively impacted by low

repo rate

Installment focus by consumers as opposedto thecomponents of cost of credit Interest, fees,credit life

Risk based pricing is offered by creditproviders

UPL lending at the margin represents ahigher risk

Where consumer behaviours is purely driven by theamount of the instalment on a loan, this is notoptimal

Integrated efforts across regulators / supervisors andindustry would be needed to change consumerbehaviour

Further research is needed to establish the factorscontributing to the

from a supervisory perspective tipping point into over indebtedness

Marketpractices: Compliance culture and market practices Consumer complicit in taking on too muchcredit Some disclosure much improved followingNCA

Credit life:

Credit life insurance generally required inrespect ofUPL applications

Both UPLs and credit life products are provided by thesame staff members of credit providers

Cost of credit life insurance to consumers a significantcomponent of the overall cost of credit in respect ofUPL

Credit life cost is disclosed separately from other costsof credit

Credit life products are used to mitigate risk by creditproviders


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S di l h i d f ll i NCA

Analysis and monitoring, combined withcomprehensive consumer education

Consider developing method to addressensuring sufficient buffer

Revenue streams from credit life productsincrease access to credit in that creditproviders

Enhanced disclosure of credit life costs wouldprovide consumers with clearer

understanding of the overall cost of credit Level of credit life insurance taken up byconsumers requires consideration



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NC

R

Regulatory/Supervi

sory

Tools

Laws Build on NCA mandate

Regulations

Directives and

guidelines

Supervisoryrequirements

Enhanced supervisory approach

Address loopholes iron reckless lending

Risk based framework

Cooperation with other stakeholders

Review regulatory frameworkCompliance reports

Assurance engagements

Corporate governance

requirements Treating

Customers Fairly initiative

Investigations and

inspections Enforcement

Moral suasion Market

surveys Stakeholder

engagements

Consumer communication and education


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l i

Priorities consumer surveys

Enhanced consumer education

National conversation

regarding lifestyle spending

and consequences of over-indebtedness



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Project Journey

Review of supply side information has not raised unexpected concernsReport on project work during May 2012 Further review work in progress

Further review of consumer related factors is required

Thank You.


Credit market of india

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