Lenders to Face Rising Risk Costs in 2013 New Economic Study Reveals Uncertainty for CEO’s
AbsolutePD Risk Forecast Signaling a Rise in Risks for the First Time Since 2009
With the abnormally low cost of risk to-date, the potential for higher credit losses presents uncertainty on a CEO’s Profit & Loss statement. The economic indicators are tough to put into business plans: annual inflation is at 1.69%, 30 year U.S. Treasury bonds are at 2.85% and inflation adjusted real return is 1.16% which are unusually low. These conditions leave little room for error at a time when CEO’s are trying to plan risk costs in 2013.
PayNet, a firm that provides risk management tools to the commercial credit industry shows moderate loan delinquencies stand at 1.40% now while they bottomed at 1.60% in 2006 during the last expansionary cycle. Furthermore, AbsolutePD® ,a leading economic indicator, forecasts 2% of loans outstanding will default by year-end 2012. This is a historical low and well below the 7.2% reached in the recession. However, for the first time since 2009, default risk is forecast to rise by 10% in 2013 increasing cost on the P&L and impacting the bottom line.
“One of the biggest uncertainties for lenders remains the risk cost in their 2013 plans,” notes William Phelan, president of PayNet, Inc. “The data tells us that risk costs will rise next year for the first time since 2009. Although far lower than the 7.2% costs in 2009, CEO’s should plan higher risks costs in 2013,” Phelan added.
Sectors with accelerating risk costs are Wholesale Trade – Nondurable Goods and Retail Food Stores. Safe sectors include Eating and Drinking Establishments, Real Estate Services, Building Contractors and Transportation Services. “Safe sectors exist in the markets, you just need to know where to find them” said Phelan.
This data will be presented at the 2012 Equipment Leasing Finance Association’s national industry conference in Palm Desert, California on October 22, 2012. PayNet will also be part of a breakout session Business Planning for the New Economic Era that will provide a CEO-level overview of past and current industry trends to help executives with their 2013 plans.
PayNet Inc. is the premier provider of risk management tools and market insight to the commercial credit industry, collecting real-time loan information from leading U.S. lenders and turning it into actionable intelligence. The company’s proprietary database — updated weekly — is the richest and largest collection of commercial loans and leases, encompassing more than 19 million current and historic contracts worth over $1 trillion. Using state-of-the-art analytics, PayNet converts raw data into real-time market intelligence and predictive information that subscribing lenders use to manage risk, lower operating costs, originate more loans and improve their business strategy. For more information, visit www.paynetonline.com.