Insight Report: Responsible Lending – Changing Regulatory Environment and Industry Practices

Governments and regulatory bodies across the world have enforced numerous measures to curb irresponsible lending practices by banks and other credit institutions. These bodies have also taken initiatives to create consumer awareness about prudent borrowing to avoid excess debt. Excessive fees and interest rates on loans, lack of disclosure of products’ terms and conditions, and deceptive debt-collection practices by banks and credit institutions contributed significantly to the financial crisis in the US and other developed economies in 2008–2009. The phenomenon of responsible lending has assumed increased urgency since the global financial crisis, and has become a priority for governments and other regulators in many countries which are increasingly concerned about the consequences of irresponsible practices in the financial sector, particularly in banking.

The US was the country most affected by the financial crisis, and was at the forefront of enforcing responsible lending practices in the banking industry to restore consumer confidence in, and stability to, the industry. In this regard, the government and regulators have implemented several regulations, including the Credit Card Act 2009, the Dodd-Frank Wall Street Reform (widely known as Dodd-Frank) and the Consumer Protection Act in 2010, as well as the Truth in Lending Act, 2010 Regulation Z for property loans. The European Banking Authority, along with a number of European economies such as the UK, Germany and Poland, have also enforced several regulations. Banks and credit institutions are now required to provide customers with understandable information about the risks and benefits of credit products so they can make informed decisions and protect themselves from illicit practices.


• This report highlights the key regulations enforced by regulatory authorities across the world to curb the after-effects of the global financial crisis.

• The report gives an insight into high-growth lending markets where risk of arrears or default is low.

• The report also uses case studies to illustrate the successful implementation of responsible lending practices.

Key Highlights

• The improper marketing and advertising of loans and other financial products encourage reckless borrowing by consumers. Low levels of consumer financial literacy have created an unclear lending situation between lender and borrowers.

• The non-availability of guidelines by monetary authorities can sometimes pose a challenge for banks, hindering the successful implementation of responsible lending. A lack of guidelines can lead banks and credit institutions to develop their own measures to comply with regulations.

• The growing middle classes in Latin America are driving demand for credit. The strict implementation of responsible lending regulations will decrease NPL rates over the forecast period (2013–2017).

• In South Africa, there is a varying pattern of highs and lows in the NPL ratio, suggesting unclear monetary regulation in the country. This is due to continued reckless lending practices by banks, and the unsuccessful implementation of the National Credit Act.

Reasons to buy

• Gain insights into different responsible lending practices adopted by banks and credit institutions across the world.

• Gain insights into factors driving the implementation of responsible lending regulations.

• Gain regional insghts into the development of lending market after the enforcement of responsible lending regulations.

Companies mentioned

Bank Negara Malaysia

JP Morgan

Sberbank of Russia

Small Industries Development Bank of India (SIDBI)

Wells Fargo

Table of Contents

1 Executive Summary

2 Responsible Lending Practices in Global Retail Banking

2.1 Background

2.2 Key Drivers

2.3 Issues and Challenges

3 Regional Overview of Responsible Lending Regulation

3.1 The Americas

3.1.1 The US

3.1.2 Canada

3.1.3 Mexico

3.2 Europe

3.2.1 European Regulations

3.2.2 The UK

3.2.3 Germany

3.3 Asia-Pacific

3.3.1 Australia

3.3.2 New Zealand

3.3.3 Singapore

3.3.4 Malaysia

3.3.5 India

3.4 The Middle East and Africa

3.4.1 Saudi Arabia

3.4.2 South Africa

4 Market Attractiveness and Opportunity Analysis

4.1 High-Growth and Low-Risk Lending Markets

4.2 High-Growth and High-Risk Lending Markets

4.3 Low-Growth and High-Risk Lending Markets

4.4 Low-Growth and Low-Risk Lending Markets

5 Responsible Lending Practices

5.1 Malaysia Central Bank’s Responsible Lending to Curb Household Debt

5.2 JP Morgan Chase Penalized for Non-Adherence to Responsible Lending

5.3 Sberbank of Russia’s Responsible Lending Practices for Vehicle Loans

5.4 SIDBI’s Responsible Lending Initiatives Driving Growth in Indian Micro-Finance

5.5 Wells Fargo’s Online Interface for Home Loan Clients

6 Appendix

6.1 Methodology

6.2 Contact GlobalData

6.3 About GlobalData

6.4 GlobalData’s Services

6.5 Definitions

6.6 Disclaimer

List of Tables

Table 1: Lending Dynamics Across Regions

Table 2: Key Definitions

List of Figures

Figure 1: Levels of Regulatory Enforcement in Key Regions

Figure 2: Market Attractiveness and Risk Assessment Index

Figure 3: Trends in High-Growth and High-Risk Lending Markets, 2008–2012

Figure 4: Trends in High-Growth and High-Risk Lending Markets, 2008–2012

Figure 5: Trends in Low-Growth and High-Risk Lending Markets, 2008–2012

Figure 6: Trends in Low-Growth and Low-Risk Lending Markets, 2008–2012

Figure 7: Malaysian Household Debt as a Percentage of GDP (%), 2008–2013

Figure 8: Non-Performing Loans to Total Gross Loan (%), 2008–2012


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