Issue 3: Customer Centricity
Regional Risks: Focus UK and Germany
United Kingdom
UK economy in numbers 2023
Sources: Coface, Gov.UK
7.1%
Inflation
-0.6
GDP Growth in %
108.0
Public Debt (% GDP)
1,727
Corporate Insolvencies (July)
47,329 US$
GDP per Capita
67.4 Million
Population
Strengths
-
Production of hydrocarbons covers three-quarters of energy needs
-
Cutting-edge sectors (aeronautics, pharmaceuticals, automotive)
-
Financial services (London as a global financial center)
-
Competitive and attractive tax regime
-
High trade balance surplus on services
-
Diversified export structure
-
Friendly business environment
-
Well-established legal system and regulatory framework provide stability and transparency
-
English as a widely spoken language gives UK a communication advantage in global business.
Weaknesses
-
High public and household debt (115% of gross disposable income)
-
Low productivity growth and training deficit not conducive to innovation
-
Regional disparities between the Southeast (especially London) and the rest of the country, particularly in terms of transport, broadband and energy infrastructure
-
Under investment in infrastructure
-
Challenge of an aging population (which can strain healthcare and pension systems)
-
Lower economic attractiveness post Brexit
-
High housing costs in many parts of the UK
-
Decreasing long term per capita income.
Aryza Assessment
Kris Costello
Group Head of Sales Lending
The recent decision by the Bank of England to raise interest rates has raised concerns about the prevailing economic challenges in the UK. The primary objective of this move was to rein in the persistently high inflation rate of 8.7%, significantly overshooting the targeted 2%. This notable 0.50 percentage point escalation marks the 13th increment since December 2021, pushing the Bank Rate to its loftiest point since 2008. Speculation about future rate hikes, potentially reaching 6% by next year, compounds the strain on borrowing expenses.
These rate adjustments have profound ramifications for homeowners and renters alike. Homeowners will directly feel the impact as mortgage rates linked to the central bank’s base rate take effect. This situation could burden around 1.2 million households, compelling them to dip into savings to meet higher mortgage payments. Concurrently, renters might face amplified payments as landlords in the buy-to-let sector transfer escalated mortgage costs.
These rate adjustments have profound ramifications for homeowners and renters alike. Homeowners will directly feel the impact as mortgage rates linked to the central bank’s base rate take effect. This situation could burden around 1.2 million households, compelling them to dip into savings to meet higher mortgage payments. Concurrently, renters might face amplified payments as landlords in the buy-to-let sector transfer escalated mortgage costs.
In response to these challenges, the UK Finance Minister has introduced a comprehensive government charter. This initiative has garnered consensus from banks, lenders, and the Financial Conduct Authority (FCA). The charter encompasses provisional modifications to mortgage stipulations, including interest-only payments for six months. These adjustments aim to alleviate monthly obligations and provide a 12-month grace period before repossession for struggling homeowners.
In the landscape of fluctuating interest rates, lenders find themselves grappling with multifaceted challenges. These necessitate streamlined communication, engagement strategies, and adept data management systems. Integrating automation into their processes is pivotal to manage the rapid frequency of interest rate shifts. Self-service options for customers and clear communication channels emerge as essential components for satisfactory borrower interactions. Moreover, the intricate array of financial products demands precise calculations and meticulous cost allotment, further accentuating lenders’ complexities.
FCA’s Consumer Duty regulatory framework heightens the demand for accountability and transparency from lenders. It emphasizes equitable treatment of customers and appropriate product offerings.
As lenders adapt to this evolving panorama, leveraging suitable software solutions to assess affordability and vulnerability becomes paramount. Collaborations with service providers across the credit-to-debt spectrum can yield valuable insights and optimize processes, ultimately enriching decision-making and the holistic lending experience.
How Aryza can help
In the midst of the UK’s economic challenges, encompassing high inflation and the strain of housing loan repayments, our suite of automation and digitalization solutions stands as a potent resource. With an eye on addressing the Consumer Duty and navigating volatile interest rates, our modular tech stack, spanning Loan Origination, Management, and Collections, supplemented by self-service functionalities, empowers our clients to enhance operations while optimizing costs effectively.
Would you like to learn more about our solutions? Please feel free to contact me at:
Email: [email protected]
Phone: 0759 3259 566
Germany
German economy in numbers 2023
Sources: Coface, Destatis
6.2%
Inflation
0.0
GDP Growth in %
65.7
Public Debt (% GDP)
1,478
Corporate Insolvencies (May)
51,238 US$
GDP per Capita
83.2 Million
Population
Strengths
-
Strong industrial base (24% of GDP in 2021)
-
Low structural unemployment; well-developed apprenticeship system
-
Importance of family-owned exporting SMEs (Mittelstand)
-
Consensus-orientated politics, institutional system promoting representativeness
-
Solid public finances
-
Well-diversified export sector (products and trade partners)
-
Low systemic political risk
-
Well-developed transportation and logistics networks
-
Access to a vast EU market and trade opportunities
-
Strong social welfare programs for workforce stability.
Weaknesses
-
Declining working population from 2020 onwards, despite immigration
-
Strong dependence on energy imports (95% of the natural gas consumption was imported in 2021, 39% of all German gas imports came from Russia in early 2022)
-
Prominence of the automotive and mechanical industries, particularly in exports (31% of total exports in 2020)
-
Capacity constraints, insufficient investment (especially in internet accessibility) and venture capital limit productivity gains
-
Aging population
-
Skilled-labor shortage in IT, Healthcare, Enigneering, Construction, Skilled trades
-
Dependence on exports.
Aryza Assessment
Aryza AssessmentRegine Hilgers
Product Owner Aryza
In July, the Federal Statistical Office (Destatis) reported an increase in corporate bankruptcies by nearly 24% compared to the same month of the previous year. The rise was almost 14% in June and 19% in May. The overall number of insolvencies has been steadily rising since August 2022.
For a better understanding of the figures, a detailed examination is worthwhile: The expected claims of creditors from reported corporate insolvencies dramatically surged to around 6.7 billion euros in the first quarter of 2023 (compared to 3.9 billion euros in the previous year). This implies that the companies experiencing bankruptcy are increasingly larger.
This also signifies that in the next step:
1.) The bankruptcy of larger companies often leads to subsequent insolvencies of smaller companies…
2.) …resulting in more employees being laid off.
Among the bankruptcy candidates, a noticeable number are fashion retailers and shoe manufacturers: Gerry Weber, Hallhuber, P&C, Reno, Salamander, or Görtz.
Practitioners also witness an increased incidence of insolvencies in their daily work. According to the Association of Insolvency Administrators and Trustees in Germany, the rise in insolvencies is “mainly due to a catch-up effect.” Many of the companies now affected by insolvency were already facing financial difficulties before the COVID-19 pandemic. The multitude of government aid during the pandemic and the Ukraine conflict merely delayed their entry into insolvency. Now, we are observing market consolidation, which goes hand in hand with insolvencies.
The gradual decline of the often-mentioned zombie companies is apparent.
One thing is clear: the conditions remain challenging. High energy costs continue to pose a significant risk, especially in energy-intensive industries like the chemical sector. Hopes that a mild winter and significantly reduced gas and electricity prices would trigger a recovery have not materialized. On the contrary, demand for chemicals has decreased. The figures for the first half of the year would have been in the red, and production costs in Germany are not competitive.
The problem of skilled labor shortage also persists for many German companies, as seen in the gastronomy sector where numerous pubs had to close due to a lack of available workforce.
And the future?
The peak of the wave of insolvencies has not yet been reached.
How Aryza can help
Risk early detection is particularly important in these times. In our lending solutions platform, this is possible, for example, through the insolvency check in all DACH Products, which provides information via API in seconds – typically faster than through credit agencies. Additionally, it is worthwhile to consider industry risks in the portfolio, especially for companies that are highly diversified. This can be done, for example, using the DIN industry code.
Would you like to learn more about our solutions? Please feel free to contact me at:
Email: [email protected]
Phone: +49-211/838 698 45
Partnership empowers innovative payment solutions
Be the first to read our next issue – sign up to our newsletter here
"*" indicates required fields