The French accumulate a record bank overdraft for 20 years

The French are increasingly using bank overdraft for their capital expenditure. This is good news for banks, which place a high-rate financial product.

Until then, it was a frequent source of shame for private individuals, it is becoming a real alternative to revolving credit among French people: according to Banque de France data, the amounts of overdrafts in the second quarter of 2015 reach summits since 1993, when this figure began to be measured.

At the end of the second quarter, the cumulative amount of current account overdrafts in France amounted to € 7.6 billion. Conversely, outstanding revolving loans continue to fall to 20.2 billion. Far from the year 2006 when they exceeded 30 billion, before the economic crisis (when the overdrafts themselves were conversely much more moderate). A good deal for banks, knowing that the average rate of overdraft in France is 10.02%. “This is actually interesting for banks because an overdraft is similar to a form of credit. Except that in the case of the overdraft, the rate is high, while the economic context pushes rather low rates, and the bank being the one who decides the overdraft authorized, it masters end-to-end the process, without going through other lending institutions “, explains Philipe Crevel, economist and Secretary General of the Cercle de l’Epargne.

For the latter, if the accumulation of overdrafts represents a good deal for the banks, it remains mainly a very short-term solution: “These are small amounts, but offer a very good rate in a context where the number of indebted households fell to 46%. This makes it possible to increase the profitability of a product among those who have problems of repayment and need an overdraft. But this is a drop of water compared to the 140 billion euros that represent all consumer credit, This is not an activity on which banks can plan their business model.

Attractiveness product for banks

The overdraft authorized is no longer just a one-time advantage granted to the opening of an account or when a card change, but even becomes a real product of attractiveness for banks. Online establishments, in particular, are trying to gain a foothold in the market by often offering more advantageous terms to their potential customers (including for unauthorized overdrafts). Contrary to popular belief, banks are fond of profiles that may use an overdraft with a double-digit interest rate.

At the risk of increasing the indebtedness of the people concerned a little more. In fact, according to the Banque de France, in November 2014, 47.9% of those who already have to repay a home loan and a consumer credit combined, also bear an overdraft, while only 16% of those who have no credit use it. And even if, in the immediate future, the increase in overdraft outstanding can positively affect consumption, and therefore encourage recovery, the backlash is a significant risk. A fear confirmed by Philippe Crevel: “This can be used to boost consumption in the short term, but the impact on growth is an illusion. Because after the time of purchase comes the time of repayment and overdrafts are known accelerators of over-indebtedness and impoverishment. In the end, it ends up having negative consequences in the long term for the whole economy.