• Analyzes the current personal loan market performance and provides forward looking estimates for the non-standard population up to 2013.

• Assesses the process of debt management and recovery and provides analysis on how it can be enhanced throughout the current climate.

Research and analysis highlights
Generally, financial institutions do not invest in debt collection activity until there is an economic downturn. Devoting resources towards improving debt recovery generates an income stream that would otherwise be lost.

The single biggest obstacle for any bank offering a personal loan is assessing the likelihood of a potential default. To help eliminate this problem there needs to be a more rigorous lending criteria and a greater degree of customer data sharing.

Banks are offering advice on budgeting and financial maintenance to help reduce the threat of delinquency, especially for individuals in difficult situations.

Key reasons to purchase this research

• Sizes and forecasts the non-standard population as well as providing historical data for the personal lending market in the UK.

• Describes in detail the process of debt recovery for borrowers who have fallen into repayment difficulties.

• Offers insight and recommendations for enhancing debt management and recovery strategies. 

CATALYST
SUMMARY

ANALYSIS
The personal loan market is bracing itself for rising impairments
Personal loan balances have grown partially due to higher default rates
Arrears and delinquency rates will continue to rise during the recession
Impairment provisions will continue to grow as banks adapt to the worsening economic climate
Growing unemployment will result in a larger non-standard population adversely affecting impairments
Prevention of bad debts is better than the cure in the current climate
Most banks have similar methods for debt recovery and collection
Determining customer intentions is crucial for future loan portfolio performance
Stringent lending policies are often the best way to minimize potential defaults
Financial advice could be one way to prevent borrowers from falling into delinquency
A delinquency needs to be identified and resolved as soon as possible
Quick identification of arrears and delinquency is the most important aspect of debt management
Customer segmentation is vitally important in order to maximize debt recovery
There are three main solutions for borrowers who fall into repayment difficulties
Third party debt collection agencies are used once all other options are exhausted

APPENDIX
Supplementary data
Definitions
Arrearage
Balances outstanding
CCJs
Delinquency
Gross advances
Impairment charge
Impairment provision
Non-standard
Secured personal loan
Unsecured personal loan
Methodology
Sizing methodology for the UK non-standard population
Step 1: The number of people in the UK of working age
Step 2: Absence of a bank account
Step 3: Unemployment
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer

TABLES
Table: Loan impairment provisions for the main high street banks, 2005–07
Table: Personal loan gross advances and balances outstanding, January 2007–September 2008
Table: Loan provisions as a percentage of total lending, 2005–07
Table: The non-standard population, 2004–08
Table: UK non-standard population forecast under the Datamonitor view, 2008–13f

FIGURES
Figure: Unsecured personal loan advances have been falling while balances outstanding have grown, January 2007–September 2008
Figure: Only a few lenders increased their proportion of total loan provisions for impairments, 2005–07
Figure: 2008 witnessed a massive growth in the number of non-standard individuals, 2004–08
Figure: Under the Datamonitor view the non-standard population will increase significantly over the next five years, 2008–13f
Figure: Every bank aims to resolve a bad debt as quickly and effectively as possible, 2009
Figure: Lloyds TSB’s budget calculator aggregates all outgoings thus providing a realistic budget representation for any consumer, 2009
Figure: Datamonitor’s definition of non-standard
Figure: A certain degree of subjectivity is needed in a definition of the non-standard population because some lenders are inevitably willing to accept greater risk than others