Risk managers say Basel may harm credit
Tuesday February 08 2011 | 07:44 AM

More than half of credit risk managers in Europe say that tightened consumer and banking regulations will impact bank profitability and credit supply, according to a new report.

The European Credit Risk Survey by the European Financial Marketing Association and technology provider Fico, published on Monday, indicates concern that new regulations could dampen credit supply and economic growth.

Over half (52 percent) of respondents to the survey, which asked risk management professionals to give their outlook on the next six months, said that consumer protection regulations would lead to a decrease in consumer lending. One third claimed that Basel III could cause consumer lending to decrease.

"This survey reveals the tensions in an industry that is seeking growth but must move more cautiously, due to a potential tightening of banking regulations," said Mike Gordon, managing director at Fico.

"A long-term depression of banking profitability could undermine the stability of the banking sector and drive disinvestment from banking stocks."

According to the report, sixty-two percent of respondents said new banking regulations may damage profits from consumer and SME credit portfolios.

The survey however threw up diverging opinions between countries. In the UK, just 38 percent of respondents said that applications for new credit will increase, while in Germany, two-thirds said that new regulations could actually improve conditions for credit supply.

"Bankers in the German region were also unique in their reaction to regulatory demands, with 67 percent of respondents forecasting that regulations will cause an increase in available credit, rather than a decrease," said Gordon.

He however added: "While a variety of factors, including delinquency expectations and reserve requirements, may inhibit supply, credit risk managers are indicating cautious growth for the months to come."