Credit and Loans Market Analysis
Credit and loans are the two main forms of borrowing or debt (and account for a large slice of the banking industry revenues). Credit is a contractual agreement whereby the borrower receives something of value from the lender, agreeing to repay at an agreed future time. Generally they are short term and unsecured. A loan is an arrangement in which the borrower receives money with an agreement to repay the principal amount along with interest in calculated installments. Loans are generally long term and are often secured against assets to cover the risk of default on repayment. However, in practice these terms overlap.
There are two forms of credit generally available:
- Credit Cards: A credit card is the most widely used form of credit. For instance, in the USA alone, cards like MasterCard, Visa and Discover generate about $2 trillion per year through credit spending.
- Hire Purchase: Through a hire purchase system the buyer pays for a product in regular installments while having the use of it. However, ownership passes to the buyer only upon the full repayment of the hire purchase facility.
Widely used loans include:
- Auto loans: Loans to finance vehicle purchases are available from banks, captives (manufacturers’ financial business arms), credit unions and finance companies. With the increase in captives, the finance business has become an integral part of the automotive industry. Europe and the USA are the two largest markets for auto finance.
- Corporate loans are used to fund capital expenditures for businesses. Bank finance and equity financing are the ways to meet capital for businesses. In Europe banks play a major role in corporate financing through business loans.
- Mortgages: These secured loans, borrowed by individuals or businesses to finance their real estate purchases, are a highly regulated market. The global residential mortgage market is a huge business and is expected to rise to $31 trillion in outstanding balances in the near future.
There are various other forms of loans and credit including student loans, personal loans, flexi loans, and micro finance.
Regional Market Shares
The USA and Europe are the two largest and most advanced loan markets:
The USA: In the years since the financial crisis of 2008, the US’s banking industry overall has benefited from steady growth in loans. Mortgage debt in the USA amounts to more than $13 trillion in outstanding loans. Consumer credit is also an important segment of lending in the USA where consumer debt amounts to about $11 trillion. Bank of America, Wells Fargo and JPMorgan Chase are some of the largest providers of credit and loans in the country.
Europe: Most businesses in Europe rely on bank loans for their financing. Borrowing through banks accounts for about 80% of corporate finance in this region. Consumer credit is also huge in Europe. With more than € 1 trillion in outstanding loans, the European Union accounts for a quarter of the global credit market. HSBC Holdings, Deutsche Bank and ING Group are some of the largest credit and loan lenders in Europe.
Trends likely to boost loan volumes include:
Non-conventional forms of lending are gaining popularity with borrowers. Peer-to-peer lending, for instance, matches individual lenders and borrowers online through lending platforms without going through a traditional bank. Additionally some more new ways are emerging in the personal loan market. For instance Nimble in Australia is an online lending platform that provides borrowers with instant short term loans, taking only a couple of hours at most to process applications.
The rise in digital banking and the benefits of real time tracking have led to innovation in the loans market. cplXpress , for example, allows lending institutions to automatically issue loan approvals for up to eight different loan products . With this technology customers are given loan offers on their smart phones based on their financial data, location and behavior.
New forms are emerging in the small and medium sized business loan market. For instance, the FINPOINT-developed online platform is a new approach which connects small- and medium-sized companies seeking a loan with suitable financial institutions and banks.
Asian family businesses, especially in India, which for years depended largely on bank finance to meet their capital requirements for expansion, are now looking for other sources. Interest rates above 17% are fueling the need for alternative investment. To match this need, 8 out of 10 High Net Worth individuals (HNWI) surveyed by KPMG in India, said they were interested in investing directly in family businesses. Therefore the role of HNWI finance in family businesses is likely to increase.
New types of borrowers are emerging in the student loans market. Historically these loans have been held by young borrowers, but this pattern is changing as borrowers over 60 years are also taking out student loans. For instance, in the USA more than 35% of loans are now being made to students above 40 years old.
List of Top Analysts
- American Financial Services Association
- Arizona Title Loan Association
- Milford Federal Savings and Loan Association
- Consumer Bankers Association
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