8/1/20: Creative destruction and consumer credit

My new article for @TheCurrency_, titled "Creative destruction and consumer credit: A Fintech song for the Irish banks" is out. Link: https://www.thecurrency.news/articles/6150/creative-destruction-and-consumer-credit-fintech-song-for-the-irish-banks.

Key takeaways: Irish banks need to embrace the trend toward higher degree of automation in management of clients' services and accounts, opening up the sector to fintech solutions rather than waiting for them to eat the banks' lunch. Currently, no Irish bank is on-track to deploy meaningful fintech solutions. The impetus for change is more than the traditional competitive pressures from the technology curve. One of the key drivers for fintech solutions is also a threat to the banks' traditional model of business: reliance on short-term household credit as a driver of  profit margins.

"Irish banks are simply unprepared to face these challenges. Looking across the IT infrastructure landscape for the banking sector in Ireland, one encounters a series of large-scale IT systems failures across virtually all major banking institutions here. These failures are linked to the legacy of the banks’ operating systems."

"In terms of technological services innovation frontier, Irish banks are still trading in a world where basic on-line and mobile banking is barely functioning and requires a push against consumers’ will by the cost-cutting banks and supportive regulators. To expect Irish banking behemoths to outcompete international fintech solutions providers is equivalent to betting on a tortoise getting to the Olympic podium in a 10K race."

3/1/2013: Irish Private Sector Credit: November 2013

Central Bank of Ireland published series of data today covering deposits and credit in Irish banking system through November 2013. Here are the highlights.

Overall, household credit outstanding at the end of November 2013 stood at EUR107.763 billion, down EUR1.354 billion on October 2013 and up EUR2.547 billion on November 2012. Compared to November 2011, outstanding credit to Irish households is down EUR3.069 billion (-2.77%). On a more stable, 3mo average basis, Q4 2013 average credit outstanding was EUR2.886 billion ahead of the same period in 2012.

Monthly decline in overall credit supplied to Irish households can be broken down into a decline of EUR1.226 billion in loans for house purchase, EUR119 million decline in consumer credit and EUR9 million decline in other loans. In other words, monthly decline was broad across all three categories of household credit.

Year on year, credit to households fell EUR1.336 billion for consumer credit, and is down EUR110 million for credit extended via other loans. There was a rise of EUR4.680 million for loans for house purchase. However, this increase itself is fully accounted for by a massive EUR6.233 billion jump in credit for house purchase extended in just one month: December 2012. Since December 2012, however, credit remained slightly lower, averaging EUR 83.978 billion over 11 months of 2013 as compared to EUR84.973 billion back in December 2012.

In summary: house purchase loans are slightly down over the 12 months from December 2012 through November 2013, Consumer credit loans are down over the same period, and other loans are also down. In all three cases, declines were moderate, implying that over December 2012-November 2013, overall credit to Irish households declined from EUR111.076 billion to EUR107.763 billion.

Compared to H1 2008:

• Household credit overall was more than 30% down in November 2013 compared to H1 2008 average;
• Credit for house purchases was more than 32% down in November 2013 compared to H1 2008 average;
• Consumer credit was more than 39% down in November 2013 compared to H1 2008 average;
• Other loans were 139% up in November 2013 compared to H1 2008 average.

Non-financial corporations total credit outstanding in November 2013 stood at EUR81.129 billion, down EUR143 million on October 2013 and down EUR3.676 billion on November 2012. Q4 average stock of credit to non-financial companies in Ireland declined in Q4 2013 y/y by some EUR3.734 billion (-4.38%). Compared to November 2011, credit to NFCs in Ireland is down EUR7.225 billion (-8.18%). More than half of this drop took place over the last 12 months.

In summary: credit to NFCs extended in the Irish system is down y/y in November and over Q4 2013 overall and the rate of decline did not decline over the last 12 months, compared to previous 12 months.

Compared to H1 2008:

• Credit to NFCs overall was more than 50% down in November 2013 compared to H1 2008 average.

Next post will cover deposits and loan/deposit ratios.