More banks entering the loan-consolidation market

Česká spořitelna (ČS) is the latest bank to enter the loan-consolidation market as consumer lending cools.

The first bank on the Czech market to offer the tool - which allows customers with various obligations like mortgages, car payments and credit-card debt to consolidate payments - was GE Money Bank. It offers the GE Money Debt Consolidation, under which loans of up to 200,000 Kč ($11,600) can be consolidated into a single, reduced monthly payment. Loans totaling more than 200,000 Kč can be consolidated under the tool, but customers must provide property as collateral.

The loan-consolidation market, ČS was quick to point out, is not the same as debt refinancing, where debtors overwhelmed by payments they cannot make are allowed to reorganize payments and agencies work with creditors to reduce payment amounts.

"The main goal of our offer ... is to reduce the monthly financial burden on the client. It is definitely not a rescue for over-indebted clients. We will offer a loan-consolidation service to both clients and non-clients," ČS spokeswoman Klára Pačesová told The Prague Post.

The ČS loan-consolidation program is currently in a testing phase that will last through the summer, Pačesová added.

The tool will allow banks to draw in new customers and capitalize on consumer lending at a time when lending itself is slowing, according to a report from the Czech National Bank.

As of the first quarter in 2011, "financial corporations engaged in lending had total assets of 344.6 billion Kč, down 7.8 billion Kč compared to the previous quarter. In year-on-year terms, they fell 40.3 billion Kč," the report said.

The biggest asset item for that category, financial corporations engaged in lending, was loans provided, which totaled 257.2 billion Kč. Compared with the final quarter in 2010, that asset was down 3.6 billion in the first quarter of 2011, a drop of 1.4 percent. On the year, loans were down 30.3 billion Kč, or 10.6 percent.

One of the biggest drops came from loans to individual consumers. Loans to households were the second-largest category under loans provided, after loans provided to nonfinancial corporations. Loans provided to households were at 78.4 billion Kč in the first quarter of the year, a drop of 0.6 billion Kč compared with the final quarter of 2010. Compared with the first quarter in 2010, loans to households dropped 38.3 billion Kč, or 32.8 percent.

In April, UniCredit Bank Czech Republic launched its own loan-consolidation product, Splátkomat, which advertises that consumers may use it to "pay less or borrow more with the same monthly payments."

"Good payers have our trust, and therefore we will not demand that they show proof of income or permanent residence address - identification documents will suffice," said Giovanni Guidi, head of the consumer finance division of UniCredit Bank. "As a result of this innovative approach to clients, the new loan can be finalized during the first visit to the branch."

Claire Compton can be reached at
ccompton@praguepost.com