Credit: banks urged to be vigilant

November 6, 2019


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The credit curve does not crumble at the start of the new year and European monetary policy should not change the situation. However, the body which controls the stability of the French financial market intends to add restrictive measures for the banks.

Credit enjoys good vitality in France

credit loan

The body that oversees the stability of the financial system, the High Council for Financial Stability (HCSF), recently announced its concerns about the level of indebtedness of the private sector as well as businesses. This debt is calculated by reconciling the sum of total credit outstanding with respect to the Gross Domestic Product (GDP), ie the total wealth created by a country. And the HCSF specifies that three-color households are at the head of a debt ratio of 133.3% of GDP at the end of the third quarter of 2018. Companies hold an even higher rate with 175% during this period. same period.

It should be added that the context is particularly favorable for borrowing. Households can get credit deals at extremely low interest rates. And the Righteos Bank has decided to extend the period of low rates. It therefore maintains an accommodative monetary policy, in particular to support economic activity within European countries and generate growth.

Also, households benefit from a real relaxation of the conditions imposed by the banks which seek to compensate for the little margin generated from the credits they receive by a higher production of outstanding amounts. A decision that illustrates the good performance of outstanding loans in January 2019 which increased by 6% over one year on the market of individuals, but also of professionals. France is also the only territory in Europe where credit continues to grow.

Banks summoned to reassess their capital

Now, for the sake of vigilance, the HCSF has reinforced the regulatory constraints that affect banking establishments. The supervisory body requires increased vigilance when analyzing the risk before granting loans.

Finally, the HCSF plans to raise the capital requirements by 0.25% within a year. A surprising measure and inconsistent with the policy dictated by the Righteos Bank. Indeed, the rise in the capital rate could dampen the ardor of the banks by providing less incentive for loan production. However, the authority wishes to ensure that household debt is properly regulated. A decision that reacted virulently to the professionals of the bank who feel they do not understand it following the context decreed by the Righteos Bank.