TDX Group

Collections promise masks gloom ahead

Credit Today
03 August 2008

There has been a slight improvement in conditions affecting collections activity in banks, according to the TDX Group Debt Index. However, the data also reveals a significant deterioration in household wealth that is likely to result in a dramatic increase in consumer debt problems in the second half of the year. Despite the problems facing consumers, creditor conditions have improved marginally over the past quarter. TDX Group said this is mainly down to creditors managing risk more effectively through tighter underwriting criteria. There was also a 17 per cent reduction in unsecured write-off rates in the past quarter. It is the third consecutive quarter in which the index has reported a fall. The horizon is bleak, however, with TDX predicting worsening conditions in the third quarter of the year. Historically, the worsening witnessed in the creditor indicators was linked to increases in lending to broader sections of the population and less stringent risk management by creditors. However, TDX said this has now largely been addressed through a change in approach from the banks and today an increase in the indicators within this category would indicate that borrowers are finding it more difficult to repay their debts. The rising cost of living and the continued downturn in the housing market are putting consumers under increasing financial pressure, which is likely to result in rising numbers of individual voluntary arrangements and debt management plans. Mark Onyett, chief executive of TDX Group, said: 'The latest findings show a mixed picture, with lower credit losses offset by a rapid decline in household wealth. But given the bleak economic backdrop, it's unlikely that the picture will be positive for much longer. We're already seeing far higher numbers of consumers struggling with personal debts and the pressure is set to intensify over the coming months.'