Households, how credit risk is changing

June 23, 2017

paolo.barbieri@prometeia.comalessandra.bettocchi@prometeia.com

In 2016, the economic recovery contributed to the improvement of credit risk, however not for all categories

 

During the crisis years, the dynamics of credit risk for households highlighted two phases. At first, the worsening of the real economy in 2008-2009 and the significant rise in interest rates increased credit risk. The growing tensions on the labour market and the sharp reduction in dis-posable income contributed to the decline of households’ economic and financial conditions at a time in which debt instalments were rising (especially for floating-rate loans), thus worsening the impairment rate. Conversely, since 2010, despite the alternation of periods of economic stagna-tion and actual recessions, the risk remained stable thanks to the decrease in debt charges and to extremely selective credit supply policies. These policies ended up in flows of new loans with a lower chance of becoming a non-performing position, even out of households developing awareness for the risks underlying bank loans during the crisis. 

The Abi agreement and the solidarity fund

A significant contribution to risk containment - from 2010 onwards - came from measures intro-duced by banks and institutions in order to help households support debt charges. In 2009, ABI and Consumers’ Association signed an agreement (moratorium) for the delay, starting from 2010, of the principal payment of the instalment for 12 months in case of economic difficulties af-fecting the household; such an agreement, extended until 2013, resulted in the suspension of almost 68,000 loans. By the end of the moratorium, the solidarity fund for the purchase of a first home was established – it is still active – which in January 2016 suspended almost 27,000 loans. The latest one, active from 2015 to 2017, allows the suspension of the principal payment of the instalment also for consumer credit. These initiatives, particularly the first one due to the ex-tension of the loans considered, reduced credit risk, by temporarily “sterilising” the effects of the main macroeconomic variables on the risk indicators, enabling households to buy some time and try to solve their difficulties.  

 
Fig. 1 Interventions in support of households experiencing difficulties
Source: ABI and MEF
 

The impairment rate of credit for consumer households displayed a lower reaction to the recovery

From 2014 onwards the intensity of the recovery, however, was not strong enough to solve a number of difficult situations, still needing a solution: such hidden latent potential for new non-performing loans may have kept the credit risk value high and still growing. Moreover, the grad-ual suspension of the measures above created discontinuity compared to the past few years, engendering higher levels of risk. 

This resulted in the fact that impairment rate of credit for consumer households seems to have been more resilient in relation to the main macroeconomic indicators in the 2010-2013 period, but displayed a lower reaction to the recovery from 2014 onwards, as instead is evident from en-terprises. By the end of 2016, the impairment rate indeed continued to increase despite the im-provement (albeit slow) of the macroeconomic conditions, reaching 1.6% compared to 1.5% of the previous year (Fig. 2). Conversely, the impairment rate of credit for enterprises, after reach-ing 4.8% in 2013 (also by effect of extraordinary factors correlated to the banking regulation re-vision process), started to decrease from 2014 onwards.

 
Fig. 2 Impairment rate of credit for households, enterprises and unemployment rates % values, annual rates calculated on volumes
Source: our processing on data provided by Banca d'Italia
 

Instead, for family businesses [1] - having contained the effects of the recession in the first part of the crisis - tensions remained high for the entire period under examination.In the coming years, with the expected consolidation of the economic growth, the impairment rates of credit should improve [2].  Nevertheless, these observations confirm the relevance of factors unrelated to macroeconomic drivers in the evolution of risk indicators for households, yielding potential considerable effects. 

 
[1] Banca d’Italia identifies family businesses as “individual enterprises, partnerships and de facto corporations, producers of market goods and non-financial services, employing up to 5 operators; productive units of ancillary services of financial intermediation without employed operators”
[2] Reference should be made to Prometeia, “Forecast of Banking Financial Reports”, May 2017. For an in-depth investigation of the impairment rates per SEA and per macro area, reference should be made to “Credit risk: recent evidence“ contained in the same report.