Tags: loan | issuance | low | default rate

Finding Favor With Loan Issuance, Low Default Rate

pink loans and green dollar neon sign isolated on black background
(Karin Hildebrand Lau/Dreamstime)

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Friday, 11 January 2019 09:01 AM Current | Bio | Archive

Although former Federal Reserve Chair Janet Yellen may have spooked the U.S. market with comments that the leveraged loan space is an area of concern because standards have loosened since Donald Trump’s presidency, others are finding hope in the low default rate.

“We like bank loans and short term loans,” said Deutsche Bank's Wealth Management CIO Deepak Puri. “Issuance has skyrocketed. It boils down to the default rate prognosis and how companies will navigate these challenging times. At a 2% percent default rate, you would not expect lot of these leverage loans or floating rate notes to be in default.”

Issuance surged from a low of $423 billion in 2015 to $609 billion in 2018, according to data from S&P Global Market Intelligence LCD, and with the global digital lending platform expected to grow to $12.1 billion by 2023, lenders abroad, like Forbrukslan, are expected to increasingly gain favor.

“It will be interesting to see if the Federal Reserve Bank will continue increasing the interest rate,” said Ole Petter Molvig, marketing manager with Forbrukslan in Norway. “If they do, it might eventually affect people's private economy negatively, which in turn might restrict consumer loans.”

Still, lending organizations and financial institutions are persisting by moving toward solutions that can manage growing complexities, according to a ReportLinker study called Digital Lending Platform Market: Global Forecast until 2023.

For example, in Norway, Forbrukslan does not sign the loan.

“We compare the loan with more than 16 banks for the customer,” said Molvig.

While the interest rate in the U.S. is hovering at 2.25% to 2.5% in the new year after four rate hikes by the Federal Reserve Bank in 2018, Forbrukslan cultivates associations with 95% of all the prime Norwegian banks on the market.

“We are like a house of banks,” Molvig told Newsmax Finance. “By not being the bank but being the middleman, we have a flexibility that the bank does not have.”

According to the report, major growth factors for the global digital lending market include proliferation of smartphones and mobile devices and organizations' continued focus on digitalization of financial services to enhance customer experience.

Currently, Forbrukslan’s loan volume is 60% refinance and 40% consumer loans to buy cars, boats and to travel.

“Our loan offerings in the U.S. will not be very different from Europe’s,” Molvig said. “We have to follow American law. However, the experience for the consumer will be different with our leveraged technology and smart design.”

A lack of digital literacy and increasing concerns over data security and privacy in the wake of sophisticated cyber-attacks may restrain market growth in the future.

“In the last couple of years the market has been regulated quite a bit,” said Molvig. “The regulations are intended for the banks but they impact us as well.”

Overall, there’s hope thanks to President Trump’s Economic Growth, Regulatory Relief, and Consumer Protection Act, passed by the House and Senate, because it reduces unnecessary regulatory burdens and will better tailor regulations to the risks.

Juliette Fairley is an author, lecturer and TV host based in New York

© 2019 Newsmax Finance. All rights reserved.

   
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Issuance surged from a low of $423 billion in 2015 to $609 billion in 2018, according to data from S&P Global Market Intelligence LCD, and with the global digital lending platform expected to grow to $12.1 billion by 2023, lenders abroad, like Forbrukslan, are expected to increasingly gain favor.
loan, issuance, low, default rate
513
2019-01-11
Friday, 11 January 2019 09:01 AM
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