A new survey of risk managers across Europe shows many expect an improvement in credit card and auto loan performance in the next six months, with much less optimism for mortgage loans and small business loans.

They predict an increase in the demand for credit but less growth in the supply of credit, due largely to regulatory burdens such as the capital requirements of Basel III. That demand-supply equation suggests a "credit gap" will occur much like what's taken place in the U.S.

Creditors ranging from local banks to global institutions took part in the survey of credit trends, which FICO and Efma (European financial marketing association) conducted in November and December. The goal of the survey, which will be conducted quarterly, is to offer a view of potential growth opportunities and challenges facing consumer credit grantors. Risk managers from 32 countries responded to this inaugural survey.

Approximately 47% of respondents expect credit card delinquencies to worsen in the next six months, which the survey report says is not surprising given the mixed acceptance of credit cards across Europe, and the historical susceptibility of credit card delinquencies to interest rate variations.

"One might assume that the 20% of responders who expect reduction in card delinquencies may be looking at a return to spending by better-quality credit consumers, or a withdrawal from usage by certain card issuers after rates increases. It is also possible that card issuers expect a return to higher utilization that would not necessarily eliminate delinquent balances, but which could reduce the delinquency rate based on higher balances...," according to the report.

Respondents are more hopeful about auto lending than other areas. Only 36% expect to see a rise in auto delinquencies, while 20% expect a decrease.

Respondents are pessimistic about the mortgage loan business, with 69% believing mortgage delinquencies - defined as 90 days or more past due) will stay the same or worsen in the next six months.

The view of small business loans in the next six months also is somewhat grim as nearly half (47%) expect delinquencies to rise. This bodes poorly for the overall ability of the small business sector to generate jobs and build economic stability and growth, according to the report.

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