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Lenders Face Rising Risk Costs in 2013, Default Risk to Rise for 1st Time Since 2009

October 22, 2012, 07:00 AM
Filed Under: Economic Commentary

PayNet, a firm that provides risk management tools to the commercial credit industry, shows moderate loan delinquencies stand at 1.40% now while they bottomed at 1.60% in 2006 during the last expansionary cycle. Furthermore, AbsolutePD, a leading economic indicator, forecasts 2% of loans outstanding will default by year-end 2012.  This is a historical low and well below the 7.2% reached in the recession.

However, for the first time since 2009, default risk is forecast to rise by 10% in 2013 increasing cost on the P&L and impacting the bottom line.

“One of the biggest uncertainties for lenders remains the risk cost in their 2013 plans,” notes William Phelan, president of PayNet. “The data tells us that risk costs will rise next year for the first time since 2009. Although far lower than the 7.2% costs in 2009, CEO’s should plan higher risks costs in 2013,” Phelan added.

Sectors with accelerating risk costs are Wholesale Trade – Nondurable Goods and Retail Food Stores. Safe sectors include eating and drinking establishments, real estate services, building contractors and transportation services. “Safe sectors exist in the markets, you just need to know where to find them” said Phelan.

PayNet, Inc. is the premier provider of risk management tools and market insight to the commercial credit industry, collecting real-time loan information from leading U.S. lenders and turning it into actionable intelligence. The company's proprietary database -- updated weekly -- is the richest and largest collection of commercial loans and leases, encompassing more than 19 million current and historic contracts worth over $1 trillion. Using state-of-the-art analytics, PayNet converts raw data into real-time market intelligence and predictive information that subscribing lenders use to manage risk, lower operating costs, originate more loans and improve their business strategy.

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