Chary of credit

Data on total credit expansion in February released by the Bank of Greece yesterday show a stable, if not downward, trend in consumer credit. It is indicative of this trend that growth in personal loans has slowed while growth in credit card lending has stayed at the same level as in the previous month. These signs of an economic slowdown may cause concern among some commercial banks, which treat consumer loans as a significant source of income both because of the total volume of loans and the high interest rates they can charge. Even so, it should still be considered a healthy sign. This is despite the fact that negative circumstances, such as the anaemic stock market and low public expectations over their income prospects, are the most likely causes of the slowdown. Indeed, even though total household lending in Greece remains low in relation to other developed countries, the precipitous expansion in consumer credit (whether through personal loans or credit cards), which doubled during the 1999-2000 period and which continued to grow during 2001, resulted in phenomena that were typical of Anglo-Saxon countries, where households have been plunged deep into debt. In the USA, for example, 40 percent of loans are granted to consumers so that they can pay off previous loans. The huge advertising campaign and easy access to consumer loans spurred a considerable number of Greeks to borrow money, not for investment or the purchase of consumer goods but in order to pay for non-essentials such as holidays, pleasure trips, clothing and the purchase of luxury goods – borrowing habits which were unknown to previous generations. Greece gradually turned from a country of savers into a country of consumers – and what is worse, of consumers on borrowed money. At first sight, this is not a harmful phenomenon, as consumer loans merely allow people to buy today what they would purchase tomorrow with their own money. However, borrowing en masse endangers households’ credit-worthiness, leading many of them to overindebtedness, increasing the risk of bank loans and undermining Greece’s savings. In this light, the looming slowdown in consumer credit is a positive development that should be encouraged. The central bank and the government should intensify their monitoring of this trend.