Risk Management in Instalment Credit.
While the risk of default is a major concern in all types of credit, for consumer credit bad debts is the largest and most volatile overhead. The bad debt experience of lenders varies very considerably, depending on the financial product used, the lender's market strategy, the regional location etc. While the industry 'norm' is broadly reported at 4% of initial advances, the experience of some lenders can at times rise to over 8%. The critical importance for management of having good information, facilitating early detection of problems and appropriate collection procedures is well recognised.
Managing the New Irish Property Bubble
The Irish Central Bank is commendably, if somewhat controversially, addressing itself to introducing new rules of thumb to discourage any repetition of over enthusiastic bank lending in the current property recovery. Among proposed ‘norms’ are the suggestion of a modest multiple of joint family income( Loan To Income) , broadly 3 to 4 times, and also a prudent Loan to Valuation (LTV) ratio on the property, say 80%.These (very blunt) instruments are being advocated on the basis that they seem to have worked in the past!.. Not really!
Whatever Happened to Irish Credit Unions?
The difficulties experienced by many Irish credit unions have been evident since at least 2007 but have been masked until relatively recently by consistent, if unwitting under-reporting of arrears. Only more recently, as new loans have become unavailable and loan books have contracted, has the true level of arrears become apparent in relative and absolute terms.