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Overview
Discover the latest market trends and uncover sources of future market growth for the Consumer Lending industry in Italy with research from Euromonitor's team of in-country analysts.
Find hidden opportunities in the most current research data available, understand competitive threats with our detailed market analysis, and plan your corporate strategy with our expert qualitative analysis and growth projections.
If you're in the Consumer Lending industry in Italy, our research will save you time and money while empowering you to make informed, profitable decisions.
The Consumer Lending in Italy market research report includes:
- Analysis of key supply-side and demand trends
- Historic volumes and values
- Five year forecasts of market trends and market growth
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Consumer Lending in Italy?
- What are the major trends set to impact the market in Italy?
- What capacity for consumer debt still exists in the market?
- What’s the state of credit quality in the market?
- Has the economic downturn reset the lender competitive landscape?
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Euromonitor’s industry reports, including Consumer Lending in Italy, originate from our database within our Consumer Finance market share and market size database, Passport, a platform which analyses Consumer Finance in 46 countries and globally.
Sample Analysis
EXECUTIVE SUMMARY
Consumer lending influenced by uncertainty
In 2010, Italian families remained cautious in spending their money and applying for new loans. The recovery in consumption had already begun in 2009 but it continued at a slow pace against a background of ongoing uncertainty among families in relation to the labour market, which could still lead to a downward revision of spending plans. Consumer lending returned to growth in 2010, although the increase remained modest, reflecting the continuing impact of the economic slowdown.
Has the euphory for revolving cards come to an end?
Following an inspection by the Bank of Italy, the central bank ordered a halt to further issuance of American Express and Diners Club credit cards because of some irregularities related to rules covering usury, money laundering and transparency. As a consequence of the clamour caused by the results of the inspection and the better awareness of the high cost of the credit card instruments, for the first time in Italy, credit cards registered a fall in both outstanding balances and gross lending values in 2010, after years of double-digit growth.
The landscape becomes increasingly competitive
Both international and domestic companies operate in the increasingly dynamic Italian consumer lending category. Despite the leading position of domestic banks, the penetration of non-traditional lenders has been increasing as a result of their less demanding credit standards. Since they do not demand guarantees, non-traditional lenders such as Agos/Ducato and Cofidis are well positioned to serve lower-income consumers and the unbanked population. Their higher exposure to non-performing loans is compensated by the higher interest rates that they apply.
Mortgage refinancing does not bring hoped-for results
Since 2007, Italian legislation has provided, through the so-called Bersani Law, the possibility of transferring a mortgage from one bank to another, free of charge. The purpose of the Bersani Law was to help families in financial distress and to make the mortgage category more competitive. By law, Italian notaries and Italian banks were required to provide their services related to the transfer of mortgages without charging fees, penalty clauses for anticipated redemption of the loan being forbidden. However, in many cases the refinancing process incurred both costs at the notary’s office and with the new lender because banks were making their customers pay. As a consequence, only around 8% of people with a mortgage asked to pass to a more convenient one and the marketplace remained poorly differentiated in terms of its product offer.
Gradual recovery expected over the forecast period
Consumer lending in Italy is forecast to gradually recover over the forecast period. A number of factors, ranging from more favourable interest rates and improvements in household demand to increased competition between lenders, and hence a wider availability of offers, will put consumers in a situation where they will be more able to voice their needs and wants. This will drive demand for loans, which should help to revitalise the Italian economy and encourage the growth of consumer credit, although at rates still lower than those seen at the beginning of the review period.
Macroeconomic factors affect consumer lending
The global financial downturn had an impact on the Italian economy, in the sense that it exacerbated growth problems and slow performances that already existed in Italy during the review period. Italy’s economic performance lagged behind those of other EU members throughout most of the last decade. There was a decline in potential economic growth while costs were rising as productivity growth stagnated. These problems are rooted in country-specific factors such as the vulnerability of small, family-owned Italian firms and their patterns of product specialisation. Italy’s economy entered recession in 2008 and continued to weaken in 2009, with GDP declining by 4.8% in that year.
The crisis affected Italian families and their disposable income. Unemployment began to climb in 2008 and jumped to 8.8% during 2009, with large regional and demographic disparities in these rates. Italy’s employment rate was also low, reflecting low labour force participation, particularly in the south.
The OECD Employment Outlook showed that in 2009, 11% of individuals living in a household with a working-age head were relatively poor in Italy (their disposable income was less than 50% of the average income). Moreover, poverty increased significantly as a result of the recession. In total, 36% of households were poor in Italy. In addition, the Italian statistics office, ISTAT, found that Italians began to spend less and save more, with the savings quota standing at 15.4% of the disposable income of the average family.
2010 showed a moderate recovery in Italy in GDP, employment rate and consumer expenditure. In 2010 Italy has even proactively approved a new set of measures to underpin its deficit targets for the coming years. However, economists suggest a certain degree of caution in thinking that the worse has already passed and, on the contrary, warn about the possibility that the European economy might be plunged back into a double-dip recession.
Current Impact
As a consequence of the general economic climate and the worsening of macroeconomic factors such as unemployment, disposable income and GDP, in 2009 and 2010 Italians showed caution in their spending decisions. All consumer purchases were affected by a sense of uncertainty and the perception of being poor; Italians became more sensitive regarding paying for things in instalments.
The rise in unemployment shook Italian consumers’ belief in their ability to re-pay future debt, which affected demand for consumer lending, causing a fall in gross lending in most categories in 2009.
2010 saw a slight recovery of economic conditions and of consumer confidence in Italy. This brought a moderate increase in consumer lending; however, growth rates of most categories were at a lower level than during the review period, confirming a higher degree of prudence.
Outlook
Euromonitor International’s latest projections – based on IMF, International Financial Statistics and World Economic Outlook – indicate that in 2011 real GDP will increase by 1.2%.
Mid-term economic prospects will remain uncertain in Italy with total productivity showing little sign of resurgence, high public debt threatening fiscal sustainability and the population ageing. Without further reforms to restore economic dynamism, living standards may be dragged down.
Despite the expected increase in the employment rate, with an essential boost to employment from immigrants who account for almost 6% of the employed resident population, consumption might remain weak if consumer expectations and confidence do not improve. The rise in oil prices and tax increases will hamper consumer spending as households become more pessimistic about the prospects for the economy and their ability to save.
A mild improvement in confidence is, however, forecast and this should be enough to trigger a slight increase in households’ willingness to spend, thus encouraging more consumers to purchase durables and other goods on credit, increasing the outstanding balance. The improved confidence should partly mitigate the impact that tighter fiscal policy will have on disposable income.
Future Impact
The future performance of GDP, inflation and unemployment will remain crucial for consumer confidence and will be the key factors to stimulate purchases, mortgage activities and the use of consumer credit and lending.
As the Italian economy is not expected to recover soon, reduced budgets will force consumers to increasingly return to consumer credit. Moreover, the higher confidence is expected to encourage Italian consumers to resume previous credit preferences.
The evolution of private consumption is forecast to reflect an increase in durable goods consumption and a decrease in demand for non-durable goods. Nevertheless, the trend of increasing non-performing loans is unlikely to change, even when the economic outlook improves.
In an increasingly consumerist society, the expected rise in competition and lower interest rates are likely to fuel demand for credit. It is predicted that the rising demand for credit and the decline in savings rates will increase the rate of insolvency among Italian consumers.
Euribor trends influence the consumer lending market
In Italy, two-thirds of mortgages have flexible interest rates linked to annual revisions based on the Euribor rate (the average inter-bank lending rate in the eurozone); as a consequence, the movement of this indicator is one of the key drivers of consumer lending.
The consumer demand expansion since the introduction of the euro in 2001 could not be explained if Italians had not been awash with cheap credit thanks to low Euribor rates. Similarly, but in the opposite direction, the steady rise in interest rates since 2006, especially the sudden spike in 2008, was one of the main factors halting consumer demand in Italy, as it shrunk the disposable income of mortgaged households. During the forecast period, Euribor rates could continue to hinder recovery in Italy if the economy remains decoupled from the leading European economies.
Current Impact
In 2008, the spike in the 1-year Euribor rate, the most commonly used reference for interest rates in Italy, including Italian mortgage contracts, sharply reduced the disposable income of many Italian consumers. This sent shockwaves through an Italian economy that had been driven almost exclusively by consumer demand. Many Italian households saw their monthly mortgage repayments increase drastically in a matter of a few months, which, added to soaring consumer goods prices and the rising rate of unemployment, led to a rapid decline in consumer demand.
As a result, Italian banks and other consumer lending players witnessed a rise in the number of non-performing loans, leading them to cut back on their loan activity. Card lenders were among the most affected during the first stage of the economic crisis, as many households continued to prioritise soaring mortgage payments, to avoid home repossessions, while failing to pay off smaller outstanding debts, such as credit cards and personal loans.
Towards the end of 2008 interest rates fell steadily. However, as most flexible interest rate mortgages are renegotiated on an annual basis, many households did not benefit from the sudden slump in interest rates until well into 2009 when they renegotiated their mortgages.
By the end of 2010, the 1-year Euribor rate reached around 1%, representing a new all-time low. This was good news for Italians with a mortgage. In addition, in 2010, as part of the ABI (the Italian Banking Association) “household plan” initiatives designed to favour the sustainability of the retail credit market, ABI signed an agreement that involved the suspension of repayments on mortgages of up to €150,000 for customers with taxable annual income of up to €40,000 and/or who had suffered from particularly negative events in the two year period 2009-2010 (death, job loss, becoming non self-sufficient, or becoming eligible for state redundancy benefits).
From 1 February 2010 onwards, Italian banks could adhere to the agreement and suspend the repayment of mortgages. The measure was unique in the European mortgage marketplace.
Outlook
Euribor rates are expected to remain low during the first half of 2011, due to the fact that the European economy is expected to recover slowly. However, during the second half of 2011 the OECD and the European Commission estimate that the European economy will start recovering. Thus, the European Central Bank (ECB) is likely to start to raise interest rates for the eurozone.
The end of the suspension period allowed by ABI’s “household plan” in 2011, without a simultaneous recovery in the Italian economy and labour market, may see households continue to face problems in paying back their debts, especially when the period was needed because of the cessation of employment or the reduction of working hours.
Future Impact
If 2011 sees record-low interest rates, this will alleviate the financial pressures on many indebted households, as they will able to renegotiate their mortgage payments downwards. The steady rise in unemployment will not help to reduce the number of non-performing loans, but for many households lower interest rates will provide some relief as they try to repay their loans.
Although the housing market will continue to struggle, amid slumping property values and a lack of liquidity, flexible interest rates will remain more attractive to Italians, to the detriment of fixed interest rate loans. The split in the portfolio of fixed and flexible rate mortgages will not change rapidly. In the longer term, however, fixed interest mortgages might gain some ground at the expense of flexible interest products, as many Italian households have learnt the lessons of 2008-2010.
If forecasts about the Italian economy are correct, the recovery of the eurozone and the resulting increase in interest rates could undermine Italy’s recovery. Italian consumers will discover the downsides of sharing a monetary policy with their European partners. The prospects of rising interest rates in a stagnant economy could further hinder Italy’s recovery from economic crisis. New ECB interest rates will inevitably come too soon for an economy experiencing a long and deep recession.
Increased difficulties obtaining credit through banks
Following on the financial crisis in the US, banks around the world became more reluctant and demanding when offering financing. The US economic landscape resulted in banks in Italy becoming even more cautious than in the past when lending money: this happened despite the fact that the non-performing debt ratio remains low in Italy compared with other countries.
In fact, rates of non-performing loans are kept low by regulations in Italy. When a borrower defaults on payments, the debt is automatically reported to the central Credit Register (Centrale di Rischi). Repeat offenders and those defaulting on mortgages/housing struggle to open new bank accounts or to obtain further loans. This acts as a considerable disincentive to default on loans. Borrowers in difficulty would instead generally prefer to reduce their expenses and acquire a second job before defaulting on loan payments.
Current Impact
In Italy, the share of non-performing debt for mortgages increased to 3.4% for 2010 versus 3.0% in 2009; for consumer credit the ratio increased to 3.5% in 2010 from 2.8% in 2009. Despite growing, the non-performing debt ratio in Italy remained low in comparison to other European countries. However, Italian banks became even more cautious when lending money.
In general terms, Italian banks have always had a more defensive business mix than European banks with more retail and less capital market activities, alongside low loan/deposit ratios (giving a funding advantage). They have little or no exposure to the subprime/conduits or other exotic products that have caused problems for other banks in the world.
A comparison with the US market, in which insolvency rates on mortgages showed a significant worsening, highlights some of the substantial differences that result in greater weakness in the American system. The main differences are the credit policy, which has been very aggressive in the US, even on non-traditional products; the greater orientation towards secondary clientele; and the level of household indebtedness, which in the US is about three times the level in Italy.
In the last years of the review period, despite the fact that in Italy there is a low non-performing debt risk and banks already have a defensive portfolio of assets, it became increasingly difficult for people who require loans to obtain these from banks.
This trend increased demand for non-traditional lenders, such as Findomestic, Agos/Ducato, Compass and Neos. However, these players charge higher interest rates, which can pose problems and impact borrowers’ financial situation. In most cases, borrowers pay at least twice what they have borrowed in repayments, even if the loans are fairly short term.
Outlook
In the short term, banks’ gross lending is expected to decrease further due to global economic concerns and a decline in inter-bank lending. Consequently, non-traditional lenders are expected to experience a further increase in demand, thus pushing up average interest rates, especially regarding the mortgage category.
Financial institutions, such as Findomestic and Agos/Ducato are forecast to prove particularly successful, due to their strong advertising campaigns that stress the easy-access and rapid nature of their consumer lending services. These two companies acquired increasing numbers of new clients in the review period, with this growth expected to be stronger during the forecast period as consumers’ economic situations deteriorate and banks further limit access to credit.
Future Impact
Banks are expected to remain prudent in their approach to mortgages/housing during the forecast period, preferring to focus on lower risk investors. A combination of high interest rates and the numerous guarantees required to take out a mortgage will erode the number of first-time buyers in the country during the forecast period.
The forecast period is expected to record a more dynamic specialist financial institutions segment, accompanied by a consolidation of their presence in terms of lending levels.
The Italian consumer finance market is forecast to maintain a positive growth trend in terms of new loans, also benefiting from the historically low level of borrowing of Italian households compared with other European countries and a greater acceptance of consumer credit among Italians.
In Italy the problem of bad loans, although growing slowly but steadily, will not become substantial during the forecast period. It is never expected to reach the levels seen in countries such as the US, for example. Italian consumers will always try to repay their debts, as the penalties for not doing so are serious.
However, at least in the short term, people will continue to experience difficulties in obtaining credit from banks. They will therefore seek out credit institutions offering higher interest rates over longer terms. In the long term, once the economic situation improves, banks will recover their confidence and offer better terms to consumers.
Auto lending likely to decline unless government steps in
After years of unprecedented growth early in the review period, auto lending started experiencing a sharp decline in outstanding balance from 2008 as the Italian auto industry was hit hard by the recession. According to Findomestic, auto sales declined by 13.5% in 2009.
Auto lending in 2010 remained at the same level as in 2009, increasing by only 0.2%. The trend towards the end of the review period was for Italians to hold off from major purchases in the face of economic uncertainty.
Current Impact
The slump in the Italian auto industry continued through to the end of the review period. Negative sentiment and economic uncertainty collided with the demand curve in the auto industry as many Italians had purchased, or leased, new vehicles in better times leading up to the end of the review period.
The auto industry is noted as being one of the hardest hit industries in Italy. The luxury car segment has seen the most significant downturn within the industry, but Italians do still love their cars. Status and brand affinity remain powerful forces in purchasing decisions. However, economy, safety and environmental considerations also continue to be primary influences on consumer purchasing decisions due to the high taxes and ongoing operational costs of vehicles in Italy.
Outlook
It is difficult to forecast the trends in the auto industry. Given prospects for a long-term downturn in the general economy, the auto industry is likely to remain in a downward trend in the immediate future. However, government incentives can help to sustain sales of cars.
The Italian government has repeatedly stated that it would apply additional measures to contain the effects of the financial crisis if necessary. If by any chance economic conditions do not improve as anticipated, it can be expected that the government may come to the rescue once again, as it did before, when it introduced incentives for the purchase of cards, such as discounts on the listed price or tax-free incentives for new and less pollutant cars.
No incentives have been programmed by the Italian government for 2011; as a consequence, the slightly positive trend in sales registered in 2010 may not be replicated during 2011.
Future Impact
With a more optimistic economic scenario, consumers are likely to see an increase in their confidence and start to purchase cars again. This state of affairs presents positive prospects for auto lending: improved economic conditions should be sufficient to sustain auto lending levels.
According to market analysts, two key barometers provide an indication as to how auto lending will perform. One is the level of employment and the other is consumer confidence and optimism with regards the maintenance of positive economic conditions.
Gross auto lending is set to increase at a CAGR of 1% in constant value terms over the forecast period, however further growth could be strongly related to the presence of government incentives that, as in the past, helped the auto industry to escape stagnation. As in the case of government incentives in 2005 and 2006, further schemes could allow auto lending to start growing again by more than a 5% CAGR.
Harmonisation of consumer lending in Europe
Since the formation of the European Union, the European Commission has created forum groups to examine the integration of mortgages and consumer credit within the European member states. In addition, the European Parliament has also started forming directives to harmonise consumer credit contracts among the EU.
Current Impact
The European Commission’s working groups have identified a large number of national peculiarities that constitute a barrier to the harmonisation of credit lending but they have also identified the different benefits of having harmonised consumer credit regulation throughout the EU. From a consumer perspective, it would enable a higher number of products and services to be offered, as well as a reduction in fees and possibly a higher level of credit being available, especially to those consumers who are currently excluded from the market. For the credit suppliers, they will benefit from greater diversification and the spreading of assets as well as economies of scale at a European level, thanks to a reduction in costs and credit risks.
In 2008, after six years of negotiation, the EU adopted its Consumer Credit Directive. The directive concerns 31 countries (the EU and Iceland, Norway, Lichtenstein and Switzerland). Member states had until June 2010 to integrate this legislation into their own national systems.
Legislative Decree 141/2010 has implemented the EU Consumer Credit Directive (2008/48/EC) in Italy. The decree came into force on 19 September 2010.
Thus far, Italian financial institutions have reacted positively to the adoption of the Consumer Credit Directive. No fear of unfair competition was voiced. This may be because the financial institutions know that customer loyalty is traditionally high in Italy and that they can adapt to competitive foreign offers if necessary. As a result, they are welcoming the opening of a more harmonised European consumer lending environment, indicating that they are ready to seize the opportunity of generating more profit with foreign borrowers.
Santander was a pioneer in Italy, in the sense that it had already launched its consumer lending products in the market during the review period, through its Santander Consumer Finance branch (specialised in consumer lending). Due to the high level of customer loyalty in Italy and the fact that Italian lenders have the capacity to sustain a strong level of competition – particularly by acquiring new assets or merging with specialised partners – it took some years to become a bank that Italians trust. However, according to a survey undertaken by the Bocconi University in 2010, Santander ranks ninth among consumer lending institutions with a 3% share, following eight Italian bank institutions.
Outlook
In the forecast period, the European Commission is expected to set out a package of initiatives to modernise the European single market. As stated in its white paper in 2007 on the Integration of the EU Mortgage Credit Markets, the Commission has shown its determination to eliminate the barriers for integration. Whether it is in the medium term or the long run it is difficult to assess but the trend is set to last. This integration comes in the context of a single market for 21st century Europe.
EU member states will need to harmonise consumer credit contracts in a number of areas, such as standard information to be included in advertising provided to consumers before contracts are signed and when they are concluded, calculations of the total cost of a loan, the right to cancel and the right to pay off a loan early.
Future Impact
An integration of the mortgage credit marketplace at a European level by 2015 would increase the services on offer to consumers. The day the new directive by the European Parliament is implemented, all EU consumers will have the right to the same information to enable them to choose the best offer in their country or another EU member state. It will be easier to calculate the total cost of a loan offered by various banks, credit intermediaries or credit institutions.
Consumers will be able to benefit from bank products that are not available in their own country; it will be easier for banks to offer their products to all European citizens. The new legislation should enable players within the European economy to take advantage of the potential that has been identified in consumer lending, which is worth some €800 billion annually. The aim is to develop cross-border trade in consumer credit. Removing obstacles should boost competition and prompt credit institutions to improve performance, by diversifying and enhancing their products for Europe’s consumers.
The simplification of offers across Europe will provide Italian consumers with more opportunity and influence when voicing their preferences. The Consumer Credit Directive will have a positive impact by creating more competition and therefore increased choice between offers. Additionally, to become attractive, lending entities will offer reduced rates.
Experts predict that some minor lending institutions will withdraw from the Italian consumer lending market. However, this will apply only to institutions with no strong lending activity model and for which credit lending remains a marginal part of their turnover. Consequently, exits from this area of operation will not be numerous and will not have a significant impact. Nevertheless, consumers will profit as non-competitive actors disappear. Thus, the first (and probably the most visible) impact of the Consumer Credit Directive will be to stimulate the product offering at a national level.
Another expected consequence of the Consumer Credit Directive will be the purchasing or the incorporation of minor lending companies by bigger institutions. Examples already include the merging of Agos and Ducato and the acquisition of Credial by Findomestic Banca SpA in 2009. The aim of these mergers and acquisitions is to achieve a critical size in order to be more powerful in both Italy and the wider European sphere. Lenders are expected to secure more customers, and hence profit, by trying to consolidate their positions on the European stage. Mergers and partnerships with companies having a complementary profile, and preferably a strong network of subsidiaries in other EU countries, should become more common.
A strategic challenge for Italian entities seeking to offer loans to foreign borrowers will be to issue and communicate in a wide variety of languages. The language barrier remains a strong deterrent for people applying for cross-border loans, and only by investing in communication in foreign languages will Italian lenders be able to capture foreign customers. Foreign lenders, which have frequently been frustrated at not being able to penetrate Italian consumer lending, may have an opportunity to make a comeback by launching offensive strategies to appeal to Italian consumers.
In summary, the EU Consumer Credit Directive is expected to have a positive impact in Italy, by allowing consumers to enjoy improved terms for their loans. At the same time, Italian lenders will continue to retain a high number of their existing customers, while attracting more foreign borrowers.
