Drop in Spanish credit card market profitability
Webteam: 11th March 2014 11:39am
6 January 2014, LONDON: The economic downturn has hit Spain hard since 2008: new research from the Lafferty Group now finds that the adverse economic environment has been dramatically reflected in its credit card market profitability.
High unemployment rates have reduced the ability of Spaniards to pay their debts and there has been sharp increase in non-performing loans. Lafferty estimates Spanish net credit card losses surged from 0.8 percent in 2007 to 4.3 percent in 2013. Most issuers have increased their interest rates and card fees to compensate for increased lending risk and a slump in merchant revenues.
After credit card profits recovered in 2010 and 2011, pre-tax profits plummeted over 62 percent in 2012 due to the combined effect of a billed volume and outstandings decrease together with higher net credit losses and operating cost to revenue ratio. Lafferty estimates that the pre-tax, credit card industry profit pool picked up in 2013 sustained by higher card fee and average APR, but was still far behind the pre-crisis level.
Although Spanish regulators expected that the sharp cut in interchange rates on card transactions in 2007 would herald a significant increase in card transactions at the POS, these expectations, due to the economic downturn, have yet to become reality. However, after card activity plummeted in 2008 and 2009, transaction volumes growth modestly stabilised between 2010 and 2012. In the new economic environment, issuers have been focused on absorbing diverse financial organisations and servicing new customer acquisitions while managing sustainable risk levels and promoting cards usage through various reward programmes, flexible payment options and product innovation.
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