The Credit Gap in Europe May Be Poised to Shrink

FICO and Efma have just published the seventh European Credit Risk Outlook, in which bankers across the region forecast a reduction in the “credit gap” for both consumers and small businesses. While 41% expect the aggregate amount of credit requested by small businesses to increase, 29% expect the amount granted by lenders to increase — that gap of 12 percentage points is still much lower than we saw just a few quarters ago. The projected gap for consumers is also lower, with 30% of respondents projecting some increase in the amount of credit requested, and 26% — a 4-point gap, vs. the 20% forecast last time.

Of course, the regional differences are substantial, and the report describes a divided Europe. Some regions have healthy supply and demand, some see both beginning to thaw after a long winter, and in others it’s still very cold indeed! However, this forecast is still positive news, especially in light of current difficult conditions for SME funding, as reflected in a story in today's Financial Times, Eurozone SMEs Struggle to Access Finance.

Better risk management practices and strategies will never eliminate the gap, but will help banks to better select the consumers for credit approvals and manage their exposure to risk. At the end of the day, this is the road to profitability.