Consumer credit is still growing at a rapid pace

Boosted by continued strong growth in consumer credit and mortgage loans, total credit expansion in February rose by 15.3 percent year-on-year, provisional data released by the Bank of Greece yesterday showed. Economists said that while the trend is set to continue in the coming months, credit expansion could slow down in the second half of the year as consumers become aware of the weight of their debt and banks become more prudent in their lending policy. The credit boom took off in 2000 on the back of declining interest rates and banks’ aggressive drive into the retail market. The Bank of Greece’s decision to lift credit restrictions on banks also helped to sustain growth. The result was a strong, 20.2-percent jump in total credit expansion in 2000. Although last year’s 15.7-percent growth rate was lower than the previous year’s figure, it still represented a healthy gain. Statistics from the Bank of Greece yesterday showed buoyant credit growth continuing in the first two months of this year. Total credit expansion in February amounted to 697 million euros, up 0.4 percent month-on-month and 15.3 percent year-on-year. Mortgage lending and consumer credit were up by 39.4 percent year-on-year to 16.42 billion euros and by 39 percent to 7.94 billion euros, respectively. Credit card lending posted the largest gain, up by 58.1 percent to 3.8 billion euros, underscoring Greeks’ growing preference for plastic. As the most underleveraged country in the eurozone based on 2000 figures, Greece is set to offer one of the highest loan volume growth rates in Europe in the next two years, investment bank UBS Warburg predicted in a recent report on the Greek banking sector. It estimated an annual loan growth rate of 14.4 percent in the 2001-2004 period against 4.5 percent in Italy and 11 percent in Ireland. Consumer lending is forecast to reach 10 percent of gross domestic product by the end of 2004. Christos Avramides, head of analysis at Proton Investment Bank, sees scope for sustained growth in consumer credit but warns a slowdown could come in the second half of the year. «We could see a slight decline in consumer credit after the summer,» he said, as households catch on to the size of their debt and banks reach their lending limit. P&K Securities banking analyst Manos Giakoumis in a recent research paper also predicted that the consumer credit convergence to the European Union average will be accomplished at a slower pace in the second half of the year. While warning of the dangers of overstretched household borrowing, outgoing Bank of Greece Governor Lucas Papademos in his annual review recently said it was difficult to foresee when the market would reach saturation point.