The Shifting Lending Landscape – Where to turn in 2009
The fallout from the credit crunch has prompted a recession and
within consumer credit the crisis has highlighted a need for
lenders to rethink their credit policies.
There is a business maxim that in difficult times the best companies cut back early, only to return early with new processes prepared for better times. Credit risk professionals will have to reassess their scorecards and credit risk policies in 2009 to ensure they are prepared to lend again in 2010, when an economic upturn is expected. Minimising risk to preserve capital will no longer be a main concern. But as current risk models are likely to have been built in a benign environment, based on data from 'good times' in 2005/2006, will they be robust enough to make responsible lending possible?
Gary Scott, Director at DecisionMetrics, the UK's leading provider of credit analytics and decision management technology, comments: "There is little doubt that the lending landscape has now changed forever. Lending policies primarily focussed on the propensity to pay based upon historic performance must now make way for a more balanced assessment with equal consideration being given to both affordability and intention to pay in addition to traditional credit risk.
Over the next 12, identifying the trends emerging in post credit crunch Britain will be key. Adapting scorecards using data that reflects recent consumer behaviour together with the integration of indebtedness and fraud indices in credit policies is essential if lenders are to be ready for the upturn in 2010. "
Callcredit Information Groups' own research suggests that today's over-indebted consumer may not fit the typical stereotype; low paid, blue collar worker in their thirties. Instead they are likely to be 45 to 55 years old, middle-class home owners, living in affluent suburban areas. Would current lending policies predict that these consumers are stretching their credit commitments? It is often the case that the most over-indebted consumers haven't missed a payment and are unlikely to be identified within current risk models. Daily, dynamic risk segmentation, driven by customer behaviour built into revised risk models and used in partnership with affordability data will be most effective in enabling lenders to keep profitable customers in the future and be more responsive to customers sliding into over-indebtedness.
DecisionMetrics is currently undertaking analysis to assess the impact of the credit crunch on customers' risk profiles, payment performance and indebtedness levels to help lenders better understand how to change their credit strategies. In early 2009, DecisionMetrics and Callcredit will host a Lender Workshop to discuss the issues raised in this article. This will be an interactive workshop for those lenders wishing to participate in the direction and results of any future analysis. If you are interested in more information on the Workshop please email firstname.lastname@example.org.
About Callcredit Information Group
Callcredit and Decision Metrics are two of six core businesses that form the Callcredit Information Group. The other four are:
• Database management company EuroDirect
• Marketing services and database specialist, Broadsystem
• Market analysis firm GMAP Consulting
• Online payment service provider, Legatio
• Callcredit (www.callcredit.co.uk) is the UK's most innovative, state-of-the art credit reference agency, with an extensive range of information and value added services for businesses and individuals.
• Callcredit check (www.callcreditcheck.com) is the consumer arm of credit reference agency Callcredit, providing consumers with instant online access to their credit report and services to help them monitor their credit status.
• Callcredit has harnessed state-of-the-art information technology with an unrivalled knowledge of the industry's needs to develop a range of innovative information solutions. Solutions that are enabling major lenders and a host of other blue chip companies to address regulatory requirements, make better credit decisions, target new customers more effectively and manage existing customers more profitably.
DecisionMetrics specialises in undertaking advanced analytical projects for the credit risk market, covering credit scoring, affordability assessment, Basel II modelling and ongoing performance monitoring and solutions implementation. DecisionMetrics operates independently and provides its expertise, without bias, across all three UK credit reference agencies.
DecisionMetrics provides a blend of analytical expertise and operational knowledge and experience that ensures that its solutions are not only statistically sound but will fully compliment the operation of the client's business.
Creative thinking, innovation and value-add summarises DecisionMetrics' approach to business.