Real Debt Consolidation Loans

In our past opinion, despite limiting public access to information, the over-indebtedness process delivers higher reflows than loans that end up in court," said Anne-Sophie Spirito, Moody's VP. "Encumbrance questions the predictability of the backlog story as borrower can induce it at any point in the credit process," added Greg Davies, Moody's deputy VP.

Moody's says that debt consolidation loans have higher failure ratios than commodity loans: the mean (cumulative) failure ratios are between 2% and 3% for commodity loans in France - and between 4% and 10% for debt consolidation loans. Extracted historic standards for Ginkgo FCT, Compartment Debt Conso 2015-1 (whose total pooled debt consolidation loan) indicate that the accumulated loss ratio could be 10% after four years, says Creditaven.

35% of the consumer loans of BPCE FCT 2016_5 are debt consolidation loans. In this case, the anticipated accumulated loss is 4.5%. So far, the real development of these values has been in line with Moody's extras. Moody's says the extent to which debt consolidation loans adversely affect the securitization process will depend on whether the loans are refinanced or restructured.

When debt consolidation aims to fund debt at a lower interest rate, expected defaults are lower. This latter would indicate that the borrowers are very likely to take the benefits of lower interest rate levels to reduce their cost. When debt consolidation is used for those in distress, failure ratios are higher.

A number of creditors use debt consolidation loans to enhance their coverage, attract new entrants from competing banks or target specific sectors. Among these are the specialist creditors who have provided the bulk of retail finance (excluding revolving loans ) in recent years, such as Ginkgo FCT-Deal' or BNP Paribas Personal Finance.

Otherwise, the debt consolidation borrower is likely to be an established bank depositor, as is the case with Groupe BPCE and BNP Paribas' private client activities in France. Of these, one is FCT Laffitte 2016, a two-year rolling trade with a 4% focus on debt consolidation loans. The higher the share of debt consolidation loans in a securitized pooled, the higher the number of failures processed via an overindebtedness process in addition to higher default rates, according to the ratings agencies.