The consumer credit market is at a standstill: after a 25% decline in March, production fell by 68% in April. Banks fear an explosion in non-payments this autumn, and are introducing tools to support their customers in difficulty.
A market collapse on a scale not seen since 2006
Since the beginning of the year, the French have been shunning consumer credit. According to the Association des Sociétés Financières (ASF), the market is experiencing a collapse on an unprecedented scale. The decline has reached 22% in 5 months.
More specifically, it is car loans that are dragging the market down, with a 39% decline in March and production falling by almost 90%, 10 times less than the previous year. In personal loans, the decline reached 67% in April, compared with 21% in March. Home improvement and capital goods loans were less affected, falling by 31%.
The health crisis has broken the momentum of consumer credit, which had been on the upswing in France for the past 5 years.
More and more maturity deferral schemes
The fact that default rates are not increasing at the moment is due to the measures put in place by the banks. In fact, lenders have shown themselves to be particularly flexible, offering deferment arrangements that are usually free of charge, and sometimes outside the terms of the contract.
Proof that the confinement has had a heavy impact on the market: in March, the Banque de France recorded an unusual level of renegotiation of consumer loans (14% of new loans).
Towards a wave of non-payments in September?
It's shaping up to be a tricky autumn for banks, which fear a wave of defaulting mortgages. Banks will have to concentrate their efforts on the best applications, as is the case for mortgages.
France is not alone in seeing signs of fragility in this market. In the United States, many jobless households have negotiated deferred payment terms to repay their loans or suspend their monthly payments. More than 3.5% of car loans were in financial difficulty in April, according to an indicator from credit data company TransUnion. The rate climbed to 5% for home loans over the same period. In Germany, to cope with the effects of the pandemic on the economy, the government imposed a 3-month moratorium, until June 30, on all consumer loans taken out by individuals before March 15.