Peter Hunt analyses market statistics for the year to September 30 2007

Peter Hunt analyses market statistics for the year to September 30 2007 Highlights

Peter Hunt analyses market statistics
for the year to September 30 2007

Highlights

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September was an interesting if not entirely conclusive month
for FLA statistics. The first full month following the sub-prime
contagion, would there be signs of market weakness?

Funding of commercial equipment continues to do well. Monthly
volume was up 9 per cent on the previous year – September was the
tenth consecutive month of growth compared to the previous year,
and a 12 per cent increase on the previous month shows a healthy
quarter-end spike. Year-to-date (YTD) commercial equipment volumes
are running at 8 per cent above last year.

Consumer finance showed a notable drop compared to the same
period last year, down 5 per cent. While credit card business
written by FLA members continues to grow, other areas falter. There
was continued decline in the provision of unsecured loans (down 32
per cent on previous year and 16 per cent YTD). Secured loans
written in September were also down on last year (16 per cent) but
with a slight YTD increase (1.5 per cent). The interplay between
the two loan types may indicate a prudent shift from unsecured to
secured lending to manage exposure risks. Retail store credit
written by FLA members was also down, 11 per cent YTD on
2006.

Comment

Business investment in the third quarter was up a healthy 4.6
per cent on the previous year. Despite low September car figures,
business finance written by FLA members for the quarter was up 4.2
per cent, largely keeping track with the economy. Meanwhile, after
rising in 2006, the third quarter also shows a reduction in company
liquidations and individual insolvencies compared to last year
(down 4.4 per cent and 5 per cent respectively). While still higher
than previous recent years, it highlights a fairly benign lending
environment where good profitability should be
achievable.

It will be interesting to see how figures change over the coming
months, with HM Treasury’s comparison of independent forecasters
showing a weakening in 2008 GDP forecasts to 2 per cent and the
Confederation of British Industry reporting healthy order books,
but some downgrading of future growth expectations.

According to the Council of Mortgage Lenders (surely an
interesting barometer of current conditions), while September was
the fifth highest month on record in terms of the underlying value
of gross mortgage lending, it expects bank base rate to fall from
5.75 per cent to 5 per cent by mid-2008 and lending volumes to
reduce 15 per cent next year. The extent that mortgage market
weaknesses will migrate into other lending sectors is unclear, and
with high variability around the forecasts, it is time for some
scenario planning.

The author is a partner in the consulting and services firm
Invigors LLP, peter.hunt@invigors.com