|CZECH REPUBLIC - Indebtedness seen by credit referencing agency operating in the new EU Member State
|(Czech Business Weekly - Prague,Czech Republic)
Czech Republic provider run credit register says 30% growth in consumer lending only a problem because consumers lack responsibility and financial literacy “It is up to clients to choose what is more suitable for them from the wide and colorful offering. For Solus, fulfilling the code of ethics is rather critical.
The Solus association (the Czech credit register) secretary Jan Stopka answered questions on the indebtedness of Czech households and related matters.
CZECHS ‘NOT YET USED TO LIVING WITH DEBTS’
By: Irena Fuková, 19. 11. 2007
The Solus credit register is designed to protect lenders from potentially fraudulent or insolvent borrowers.
Created by 11 credit-providing institutions, its members include banks Československá obchodní banka (ČSOB), Komerční banka and Raiffeisenbank; telecommunication companies Telefónica O2 Czech Republic, T-Mobile Czech Republic and Vodafone Czech Republic; and nonbanking consumer credit providers such as Home Credit, Cofidis and Cetelem.
The register currently contains data on more than 569,000 consumer, business and other debtors with payment obligations of Kč 11.2 billion (€419.9 million). Solus association secretary Jan Stopka answered questions on the indebtedness of Czech households and related matters.
Q: DO YOU THINK THE INDEBTEDNESS OF CZECH HOUSEHOLDS IS STILL BEARABLE?
A: Though the rate of growth of the indebtedness of Czech households was in recent years quite big and unusual for Czech conditions, it has still not reached the indebtedness level of households in the European Union. This is partly because Czech households have been getting used to living with debts for a much shorter period than households in other EU countries.
Q: BUT ISN‘T THE RATE OF GROWTH ALARMING?
A: I do not think it is dangerous as it has already stabilized at an annual 30 percent. What is more dangerous is that Czech households need to get used to living with debts and the requirement to act responsibly. This, for instance, means that if they get into problems with paying their obligations, they should immediately inform their creditor or creditors and try to find a solution for these financial problems.
Q: SOME PEOPLE ALREADY HAVE PROBLEMS WITH PAYING THEIR DEBTS. RESEARCH SAYS ONE QUARTER OF PEOPLE MAY BE IN THIS POSITION. HOW WOULD YOU CATEGORIZE THEM?
A: There are three basic groups. The first group is clients who signed a contract despite having no intention of paying their obligations. The second group is clients that have financial difficulties that they intend to resolve with other debts. Colloquially put, they are trying to knock a wedge out with another wedge. Some sort of solution for these people might be the so-called consolidation of financial obligations in which their several debts with different creditors are replaced with one debt unfolded over a longer time period. The third group is clients who have ceased paying their obligations at the end of a contractual relationship. … They think the creditor will not actively enforce the amount after the maturity date. But the opposite is true. In addition, it is apparent from Solus statistics that the proportion of clients [with debt payment problems] has been decreasing significantly in last 30 months. In the fall of 2005, [the third mentioned category] stood at approximately 17 percent of the debtors, but currently it is at below 1 percent.
Q: THE NUMBER OF CLIENTS WHO LIE ABOUT THEIR INCOMES WHEN APPLYING FOR CREDIT IS REPORTEDLY GROWING. DO YOU THINK THIS IS THE CASE?
A: Solus member companies currently use sophisticated systems that in combination with information from Solus’ client register can keep risk at a reasonable level. Most lately, I haven’t noticed information about a dramatic growth in such problematic clients.
Q: IS IT CORRECT THAT BANKS AND NONBANKING INSTITUTIONS EVEN ENCOURAGE CLIENTS WHO ARE LESS THAN SOLVENT TO TAKE OUT LOANS, KNOWING THEY COULD HAVE PAYMENT PROBLEMS?
A: Solus cannot determine its clients’ business conditions. It is true that in recent years there has been sharpened competition for clients and some services have become more accessible, which from my point of view is only good. Tougher competition helps improve services. ... I don’t know of any Solus member company with the goal of providing services to clients not worthy of credit. On the contrary, [they all] have an interest in minimizing losses from provided services, so good clients won’t have to pay for them through [higher] service prices, and of course in order to hit bigger profits. The Solus framework includes an obligatory code of ethics for all members.
Q: THE MINISTRY OF FINANCE AND OTHER ENTITIES PLAN TO EDUCATE CZECHS IN FINANCE SO PEOPLE CAN BETTER DECIDE WHEN TO TAKE ON CREDIT. ARE SUCH MEASURES SUFFICIENT?
A: Any activity in this area is a contribution … part of the population never come across economic basics or ‘family accountancy’ at school so terms such as the APR (annual percentage rate), interest rate, the principal and so on are unfamiliar. Some people are not able to calculate if they will be able to meet their obligations from their disposable incomes. They don’t count on the possibility of losing their job so they have no minimum financial reserve for unexpected circumstances.
Q: SOME OF YOUR MEMBERS PROVIDE LOANS WITH PARTICULARLY HIGH INTEREST RATES. DO YOU THINK IT IS MORAL AND CORRECT TO DO THIS?
A: From the position of secretary of Solus, I can’t evaluate the business politics of our members. It is up to clients to choose what is more suitable for them from the wide and colorful offering. For Solus, fulfilling the code of ethics is rather critical.
Created: 20/12/07. Last changed: 20/12/07.
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