Are Unsecured Personal Loans Bringing the Economy Down?

When unsecured personal loan was introduced to New Zealand banking, its goal was to serve a wider-bracket market and earn the industry more in the process. True to its goal, the loan revenue doubled in its first year. More residents have been availing the service ever since, taking advantage of the benefits this type of loan had to offer.

However, as New Zealand economy was hit by financial turmoil like the rest of world before the closing of the decade, losses from lent bank loans continue to rise due to the country’s overall poor credit rating and inability to repay financial obligations. In the Financial Stability Report of New Zealand released November of 2009, Deputy Governor Grant Spencer stated that further loan losses might still be observed for 2010 due to an increasing rate of unemployment in the country. This is in spite of the stabilizing monetary system until early this year.

According to the report, household borrowings accounted under unsecured personal loans are modestly increasing, yet credit growth for 2009 and credit forecast for 2010 are still flat. In offhand analysis, though unsecured personal loans seem to keep banks and other lending institutions afloat, current trend in the market still implies the opposite result in the long run. This type of loan should gain a favorable share in the credit market as more and more people are losing their properties which can be used for collateral, but losses are still unlikely to be recovered in the immediate future.

Auspiciously, even if existing loans in general remain unpaid for the remainder of the year, contingency funds of banks are still sufficient to withstand significant shock caused by the past recession. Nevertheless, to maintain liquidity of the banking sector for the remainder of the predicted duration of flat market flow, banks are still opening the usual process for unsecured personal loans, only this time with stricter standards.

On a lighter note, the active banking sector is expected to regain momentum starting on the later part of the year. As loan losses are expected to be recovered, clients are also expected to return to their normal transactions and hopefully, their regular payment of premiums.

* This article was written early 2010.

_________________________

James Henry Abrina is an editor, writer, SEO specialist and currently a Corporate Communication Professional, Market Desk Strategist, Business Development Officer and Unit Head for Business Profiles Incorporated.

He currently specializes in security management and business intelligence. Together with the company, he advocates Business Continuity Planning to change how the Philippine business sector sees the definition of crisis response and management.

For more useful information, read his articles at Triond and Masscom Tutor. Or his EzineArticles page.