The Spanish credit industry must be understood within the context of the European and international financial landscape. Its challenges include controlling inflation, combating debt collection, ensuring the flow of credit, greater credit flexibility, and the increasing implementation of new technologies.
According to GDS Modellica, technology, Artificial Intelligence, and Intelligent Management throughout the process play a prioritary role in efficiently addressing credit trends.
Despite the pandemic crisis, challenges continue for Iberia, and despite Spanish banks and financial institutions having healthy balance sheets and a strong capital and liquidity position, the international financial climate remains hostile. The local industry has been affected by the fall of SVB Bank and the crisis of Credit Suisse, which have had a significant impact on the European and Spanish financial sectors and on the evolution of credit in 2023.
The main challenges for the Iberian credit culture, according to GDS MODELLICA, include the strong influence of the now-crisis-hit international financial ecosystem, the growing need for credit to stimulate and grow the economy, tackling inflation, combating financial fraud, and facing another year with a significant focus on debt collection from portfolios.
Rising interest rates and high inflation are directly impacting the savings and consumption capacity of customers. Consumer credit has been one of the sectors most affected by inflation and ongoing economic uncertainties. Due to these circumstances, financial institutions anticipate a possible contraction in consumer credit demand as customers have less disposable income to defer their consumption decisions. Additionally, they expect an increase in delinquencies.
Specifically, the overall credit demand in Spain, according to the Credit Trends Report by ASNEF and EQUIFAX, closed the first quarter of 2023 at record levels, 129% compared to January 2019, confirming the positive trend of recent quarters. The risk profile of the demand is one of the lowest records (79% compared to January 2019). Regarding credit demand by sectors, consumer finance and microfinance companies are registering the highest levels in recent years.
Despite these indicators, the Bank of Spain has detected a slight increase in loans under special surveillance, or “stage 2” (loans that have not resulted in default) and has given the first warning signals by the end of March, specifically 7.2%, changing the trend from 2022 by increasing 0.1% compared to the previous quarter. As for doubtful loans at banks, stage 3, they have decreased by 3.37% in the first quarter to 38.916 million euros, compared to 40.277 million in December 2022. The non-performing loan ratio continues its downward trend, standing at 3.4% in March of this year, 3.5% in December, and 4.2% at the end of 2021.
Another relevant data point is banking delinquency, which, according to the Bank of Spain, was 3.54% at the end of 2023, the lowest level since December 2008. These results do not initially raise concerns about a recessive trend regarding delinquency and defaults. These positive outcomes are not random but are a result of the efforts made by financial institutions to seek and find digital solutions like Modellica Digital Onboarding and decision-making solution providers like GDS MODELLICA. These solutions are capable of providing an efficient response and optimizing credit recovery processes, as well as designing and implementing complex strategies to mitigate risks of default, granting credit, or fraud, among others.
Financial institutions must respond to customers promptly, hence their need to explore new financial products and experiment with various providers while opting for and seeking digital solutions that guarantee quick, easy, and flexible access. Banking is becoming increasingly digital and mobile, and users are becoming more mature, informed, and demanding more advanced solutions (almost instantaneously). Technology, Artificial Intelligence, and decision-making management play a prioritary role in efficiently addressing new credit trends. Antonio García Rouco details how this is done in his consulting firm.
Artificial Intelligence and Intelligent Management play an essential role; in fact, the predictive capacity of intelligent decision management applied to a client’s risk cycle must be one of the great allies of credit institutions.
Achieving better and more profitable admission involves growing the credit portfolio and greater financial inclusion without additional exposure to risk. An example of this is Modellica Digital Onboarding, a fully digital and instant process to capture customer data, process applications, and provide an instant response.
Intelligent Client Management is necessary for growing and maintaining a profitable portfolio. It involves making decisions based on customer behavior, having the ability to manage limits, and preventing delinquency before it occurs. Modellica Collections Engine is the solution to optimize and digitalize debt recovery processes and address delinquencies.
Financial institutions that want to lead, evolve, and streamline processes, as García Rouco concludes, must rely on models and solutions like those provided by GDS MODELLICA.
It is true that many institutions have the capacity to undertake in-house development of such solutions, but experience and statistics are showing a positive bias towards outsourcing these services to niche specialists for decision-making and data orchestration processes. Technical capabilities and expertise are difficult to replicate, and specialists in this type of solutions have a head start that new competitors looking to build their solutions are yet to achieve, such as model training, strategy management optimization, or the robustness of tested and effective systems, highlights García Rouco among other factors that hinder efficient production entry for internal development versus outsourcing to specialists.