Reduction of insolvencies offset by a rise in unsecured write-offs
Despite the continued impact of the credit crunch, market data produced by TDX Group, the leading provider of debt management services to creditors, indicates a marginal improvement in the macro conditions affecting the ability of banks to collect outstanding balances.
The TDX Group Debt Index, which tracks these conditions on a quarterly basis, fell by 1% between Q4 2007 and Q1 2008, thereby improving slightly. A rise in the index reveals that the environment for creditors to collect their debt has worsened, whereas a fall means it should be easier for them to do this. Since the first quarter of 2007, the environment for collecting debt has stabilised because there was no increase in the Index during the first three quarters of 2007, and a fall of 6% between Q3 and Q4 2007.
However, the current Index level is a staggering 23% higher than the first quarter in 2005 and 9% higher than the same period in 2006. The Index, which was launched in 2002 with a starting position of 100, is currently 37% higher at 137.
The reason for the slight improvement in the Index for the first three months of this year compared to Q4 2007 is that there was a 1.7% fall in the debt burden indicators of the Index and a 1.6% decline in its delinquent indicators – both changes representing an improvement in the ability of creditors to collect their debts.
The TDX Group Debt Index is made up of three components:
- Debt Burden Indicators: These track the overall level of personal debt and the difficulty a typical household will be experiencing meeting those commitments. These fell by 1.7% between Q4 2007 and Q1 2008.
- Delinquent Indicators: These indicate the level of adverse behaviour amongst people with debts and the adult population as a whole such as insolvencies and unemployment. These fell by 1.6% between Q4 2007 and Q1 2008.
- Wealth and cost of living Indicators: This category contains factors that indicate the overall wealth level of the UK population and changes in the cost of living. This rose by 1% between Q4 2007 and Q1 2008 as the general cost of living increased and property price increases stalled or fell in some parts of the country. A rise in this category denotes a worsening of conditions for creditors.
Mark Onyett, CEO, TDX Group Ltd said: "The latest drop in our Debt Index is only marginal when compared to the larger decrease in the previous quarter. The 1% decrease in Q1 2008 was once again driven by continued reductions in the numbers of insolvencies along with a small improvement in creditors servicing costs which had increased disproportionately in Q4 2007 as a result of the global "credit crunch".
"The secured property value indicator, which has previously had a positive impact on the index, has been stable for the first time since Q3 2005 reflecting the recent slowing of the housing market. The unsecured write-off rate did show a substantial increase but this was still not up to the levels observed before the previous quarter’s 30% reduction."
* Based on data trends through the end of Q4 2007
About The Debt Index
The Debt Index has been developed by TDX Group to represent the impact of current macroeconomic and credit sector factors on creditors’ efforts to collect on their outstanding balances. The index is based on 2002 = 100 and has been calibrated such that a rise in the index value represents worsening conditions from a creditor’s perspective. The index comprises of a number of macroeconomic variables and industry performance measures which are weighted based on their predicted impact. Each variable is assigned to one of three categories, with each category representing an underlying cause for a worsening debt market.