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Willy Weasel

Banks Turn Away 1 In 7 Customers

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From Bloomberg (my emphasis):

One in seven Britons, the most indebted consumers in Europe, won’t be able to get credit from the country’s largest banks by the end of next year, according to Datamonitor Plc, swelling the customer base of subprime lenders such as Provident Financial Plc.

The number of borrowers denied credit by traditional lenders will rise to 9 million next year, or 15 percent more than at the end of 2008, said Jonathan MacDonald, a financial services analyst at Datamonitor. The London-based research company warned of excessive U.K. consumer debt in 2004.

Banks including government-controlled Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, nursing losses from property and credit investments, are turning away more customers after they tightened lending criteria. Subprime customers are instead being serviced by lenders that charge as much as 350 percent interest per year. The market for subprime lending will increase 11 percent to 10.1 billion pounds ($16.4 billion) by the end of 2009, he said.

“We are concerned because you’re pushing people into less savory types of lending where the interest rates will be very high,†said Frances Walker, a spokeswoman for the Consumer Credit Counselling Service, a registered U.K. charity.

HSBC Holdings Plc, Europe’s biggest bank, closed Beneficial Finance, its U.K. subprime division, to new business this month and said it plans to shut 100 of its 125 branches. HSBC follows Barclays Plc and Deutsche Bank AG, who pulled out of the subprime market in 2007 and 2008 respectively as the economy slowed and bad loans increased.

Need the Money

“If we weren’t there, the chances are our clients would still need to get the money from somewhere, or suffer substantial hardship,†said Provident Chief Executive Officer Peter Crook. “If we didn’t exist, rather than the agent from Provident calling it could be the illegal lenders.â€

The worst recession for at least 30 years has also hurt London Scottish Bank Plc and Cattles Plc, two of the U.K.’s biggest publicly held subprime lenders a year ago, as rising unemployment prompted a surge in bad loans.

London Scottish was forced into administration on Dec. 1. after the Manchester, England-based company wasn’t able to run down its loan book quickly enough or find a buyer.

Cattles, the largest lender to subprime customers before this year, stopped lending to new customers in February and its shares were suspended in April after the company miscalculated default provisions and failed to report its 2008 results. Six directors of Cattles have been suspended.

Gap in Market

“With an increase in the non-standard population there’s a gap and smaller players are filling it,†Datamonitor’s MacDonald said in an interview. “I won’t say they’re loan sharks because these people are actually licensed, but they’re at the very bottom end of the market and picking up share where they can get it.â€

The biggest lender left in the market is Provident, which typically charges 500 pounds over a year for a 300-pound loan to borrowers with the worst credit histories. The company posted a 14 percent rise in profit to 92 million pounds last year, when it was the best-performing lender in the 249-member FTSE ASX Financials Index.

“Others have entered the market in the boom times but they don’t have the infrastructure to make collections,†said Nitin Arora, a London-based analyst at Noble Group Ltd. “There are seven million people without much access to credit falling into Provident’s hands.â€

Provident, which goes door-to-door to collect payments from customers every week, has avoided its rivals’ problems by limiting bad-loan charges as a percentage of revenue to 40 percent. That’s a level that Crook says has been constant throughout the company’s 129-year history, including during World War II.

Weekly Visits

“I don’t think our rates of interest are high per se,†Crook said. “We’re charging for the labor cost of our customers being visited every week. We’ve got to pay our agent to come and visit your house 57 times.â€

Provident said earlier this year it was picking up customers turned away from major banks and from the demise of Cattles and London Scottish. Despite this, the lender has “deliberately constrained†customer growth to keep down arrears. About half of Provident’s 1.7 million customers are on some form of state benefit, meaning they are largely unaffected by the slowing economy, Crook said.

Provident has declined 4 percent since December 2007 in London trading, compared with a 55 percent drop for the FTSE-350 Banks Index.

‘Credit Binge’

“Some banks have grown too fast,†Crook said. “Some have had credit standards that have been too low. The consumer has been on a bit of a credit binge and that’s a two-sided affair.â€

U.K. consumers’ debt reached a record 1.5 trillion pounds in April, more than the country’s 1.4 trillion-pound gross domestic product, according to the Bank of England.

Banks including Barclays, Northern Rock Plc and Lloyds pledged to increase lending this year. Meanwhile, Britons have begun paying down bank loans, returning 930 million pounds more than they borrowed in the three months to April this year, according to the Bank of England. They borrowed an extra 2.7 billion pounds in the same period a year earlier.

“Financial exclusion is a big issue,†Walker said. “There’s no doubt that creditors will be much more risk averse and there is a tendency to only lend to your own customers.â€

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I am absolutely stunned that 6 out of 7 customers WILL get credit from banks.

I used to be personal loans marketing manager for one of the high street banks back in the late 90's and we used to have a 40% straight decline on applications.

My view of the UK credit market is that Gordon Brown is the one who finally gave Mr Creosote a wafer thin mint and then there was no stopping the banks. We are at the dry heaves stage at the moment.

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My view of the UK credit market is that Gordon Brown is the one who finally gave Mr Creosote a wafer thin mint and then there was no stopping the banks. We are at the dry heaves stage at the moment.

:lol:

I just thought I'd let you know that a mouthful of half-chewed apple sprayed all over my keyboard when I read that. Very appropriate, really.

And before anyone starts on at me for wasting time at work

a - it's lunchtime,

b - it's my company - or one third of it is, and

c - we're waiting for a piece of work to come in and the customer is, as usual, late sending it

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:lol:

I just thought I'd let you know that a mouthful of half-chewed apple sprayed all over my keyboard when I read that. Very appropriate, really.

And before anyone starts on at me for wasting time at work

a - it's lunchtime,

b - it's my company - or one third of it is, and

c - we're waiting for a piece of work to come in and the customer is, as usual, late sending it

I'm at work, too but :-

a- I don't care what people think

b- I have a job with not much to do (except go on HPC and trade shares)

c- I own *uck all of the company

Edited by PotNoodle

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“We are concerned because you’re pushing people into less savory types of lending where the interest rates will be very high,†said Frances Walker, a spokeswoman for the Consumer Credit Counselling Service, a registered U.K. charity.

I'm not concerned. I'm more concerned when prudent savers and low risk borrowers are forced to subsidise the people who shouldn't be borrowing at all.

BTW, I'm at work too and you lot are paying me. :P

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I am absolutely stunned that 6 out of 7 customers WILL get credit from banks.

I used to be personal loans marketing manager for one of the high street banks back in the late 90's and we used to have a 40% straight decline on applications.

My view of the UK credit market is that Gordon Brown is the one who finally gave Mr Creosote a wafer thin mint and then there was no stopping the banks. We are at the dry heaves stage at the moment.

Aye, but it doesn't say how much they will give them as a limit.

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