Consumer debt a risk for economy

The explosive growth of consumer loans over the past few years has the makings of another time bomb for the Greek economy. The tripling of loans in just five years is not a sign of a more mature market; it is more like a slippery slope inexorably leading to another bubble. The continually increasing percentage of loans that are not being paid off is adding to the existing concerns. The fact that one in 10 borrowers fails to the meet his obligations is clearly a danger signal. Fierce competition among banks, which has developed only recently in Greece in terms of the credit market, has led to a variety of excesses. Institutions offer products and services without requiring the necessary guarantees from borrowers. Naturally banks take the risk that some loans will not be repaid. But the huge increase in the number of unpaid loans represents a risk for the entire economy. The central bank, the Bank of Greece, is busy exercising its duty as a monitoring mechanism. At every opportunity it warns of the dangers inherent in an overheated banking market. Even so, it must also adopt more drastic measures. It should not be possible, for example, to take out a loan for a super-deluxe, ultra-expensive automobile without the borrower first paying a basic deposit of 20-30 percent of the value right up front. Nor should banks farm out debt collection to third parties. It may reduce their risk but it can also have unforeseen repercussions. One of these is the unchecked granting of loans. Credit expansion is generally a blessing for any economy, as long as it proceeds at a normal rate. But the frantic acceleration of loans, particularly in an economy like the Greek one (which has not as yet developed the requisite depth or maturity), could always lead to unpleasant surprises.