European Credit Delinquencies Will Rise Further

The need for small business credit is making headlines in many European countries, with politicians often railing against banks for “withholding” credit. Anyone wondering why banks are being conservative with their lending should review the latest European Credit Risk Outlook released by FICO and Efma.

According to more than 100 European risk professionals, consumers and small businesses are going to find it harder to pay back credit of nearly every sort in the coming six months. The forecast for credit delinquencies was worse across all credit products than in our fall survey.

Right at the top of the worry list are small businesses loans. 70% of risk managers say delinquencies will rise for small business credit, compared to just 52%in the last survey. In the UK, the percentage of respondents that see an increase in small business loan delinquencies for the next six months jumped from 33% in the last survey to 61%. The survey results also show the dichotomy in Europe’s economic health: In Spain and Portugal, all respondents forecast an increase in small business delinquencies, whereas in Germany, Austria and Switzerland just 9% of respondents forecast an increase.

In addition, more than half of respondents now believe mortgage delinquencies will increase in the next six months, compared with 39% in the last survey. The forecast is worse for credit cards: 65% of risk managers see increased delinquency, compared with 41% in fall 2011, an increase of 58%.

Despite all the talk about consumer deleveraging, this survey suggests that, in most European countries, neither small businesses nor consumers are going to find their credit load easy to bear this year.