Currently, 2.5 percent clients of financial institutions are late in fulfilling their obligations. The growth of this indicator has been recorded since the end of last year, when it reached 2.44 percent, according to data from the data analytics company Scorify.
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According to experts, it is becoming more difficult for residents to repay existing debts due to rising interest rates that have outpaced income growth. However, they note that the default rate remains low and its further growth should not cause significant risks to the financial system.
“The fact that part of the population has difficulties in repaying debts is determined by several aspects. First, people continue to actively borrow. According to the data of the Bank of Lithuania, in 2023 in the country, the portfolio of consumer loans grew steadily, we can see the demand by monitoring our customers’ basket. But at the same time, personal income growth has slowed, meaning that existing debt is growing faster than wages. Let’s take a person who earns 1000 euros per month. If last year he paid 100 euros each to fulfill his obligation, after the loan servicing costs increased, but the amount of earned income did not change, now the resident will have to allocate more, for example 120 euros, to repay the loan per month”, comments Giedrė Štuopė, head of online lending company Vivus Finance .
However, according to the expert, although the average indicator of the ratio of financial obligations to sustainable income is increasing slightly, it currently does not exceed the requirements set by the Bank of Lithuania. And if the forecasts of interest rate decline are confirmed, its value should stabilize.
“Residents who are responsible for managing and planning their finances will not have to tighten their belts drastically in order to continue to fulfill their obligations. In addition, we notice that people’s attitude towards consumer loans is also changing. Not only do they increasingly critically evaluate where it is better for them to borrow – they are interested in different companies, compare terms and the like, but also consider whether there is a need to borrow at all,” says the head of Vivus Finance.
The fact that the demand for consumer loans remains stable is also shown by the data of Creditoria, a credit bureau managed by Scorify.
“Currently, financial institutions receive 3 percent of credit applications. more than last year, and 23 percent their become contracts. This indicator in the last 12 months ranged from 22 to 25 percent, so the financial situation of residents requesting loans does not change significantly,” says Scorify manager Andrius Bogdanovičius.
Those at the highest risk have decreased
However, the data reveals another encouraging trend – the number of persons with the highest risk of insolvency has decreased over the past year.
“Last year, 31 percent were assigned to high risk – D and E – classes. of the borrowing population. And this year, they decreased by ten percentage points, to 21 percent. This shows that residents have adapted to the changed economic environment and have found ways to optimize their personal finances more efficiently,” says A. Bogdanović.
But, according to him, this change does not mean that we can relax. It is necessary to monitor one’s credit rating, obligations and maintain a positive credit history on an ongoing basis: “In this way, the resident can more effectively maintain personal financial discipline, manage obligations, and with a high credit rating – get more favorable conditions at the credit institution.”
Most of the delays are after mass layoffs
However, the head of Vivus Finance notes that there are isolated cases of delays. Most of the time, it becomes more difficult for those who have lost their jobs to fulfill their obligations in the fields of industry, construction, as well as where technological progress and automated processes change the need for low-skilled workers: “Loss of a job can be a big shock that seems to shake our lives to the core. And we feel even more anxious if we have financial obligations.”
According to her, in case of job loss or other unforeseen difficulties that prevent the fulfillment of existing financial obligations, it is necessary to notify the institution that issued the loan:
“Consumer credit providers do not seek to hand over the borrower to law enforcement on the first day of delay. On the contrary, most of them tend to assess each situation individually, to look for ways to ease the client’s burden. Only during dialogue can a solution be found, for example, deferring loan repayments, reviewing the repayment schedule and adjusting it, and so on.”
The financial expert points out that the creditor’s work does not end after the loan is issued – companies constantly monitor whether customers fulfill their obligations on time, and if they notice a late payment, they try to contact them themselves.
“In such cases, the debtor is called by phone, SMS messages, electronic or registered letters are sent, the aim is to inform him about the incurred debt and ways to help the client are sought. However, it is important to mention that even if the creditor does not communicate, the debtor should not be calm and hope that perhaps no one has noticed his debt. In such a situation, I would suggest that you contact the company that issued the loan yourself, indicate the reasons for the delay and cooperate in finding a solution,” she says.
