Outlook
Forecast GDP – 2009 forecast range
Source: Datastream, Reuters, Haver Analytics and Citibank.
We have a resilient business model. Our loan book is short-term – on average just under six months repayments are outstanding, which means we can quickly change the risk-return profile of our lending, and our close customer relationships allow us to rapidly detect and respond to changes in customers’ circumstances.
However, the extent and duration of the economic downturn and the impact of this on the markets in which we operate is unclear. In these circumstances the guidance we can give is less certain.
We expect that during 2009 the economies of the emerging markets in which we operate will slow substantially or move into recession and this will reduce household incomes and so lessen customers’ ability to repay loans. In this situation we can expect collection of loan repayments to be more challenging and credit quality to come under pressure. Our central planning assumption is that impairment will increase by around 5% of revenue as a result and collections performance in the early weeks of 2009 supports this view, with Mexico less affected than our European markets. We will mitigate this by reducing our operating costs in Central Europe by at least £10 million – approximately 5% of our other operating costs.
We are confident that the actions we have taken to tighten credit criteria and minimise costs will allow us to weather the recession successfully and that we are well placed to respond rapidly and grow when conditions improve.