An improved housing market will increase wealth, allowing consumers to borrow more.
Los Angeles, CA (PRWEB) May 18, 2013
The Loan Administration, Check Cashing and Other Services industry has battled through a tough economy to squeak out growth over the past five years. According to IBISWorld industry analyst Eben Jose, “Declines in consumer confidence and the housing sector have caused Canadians to become cautious with their money.” Consequently, upstream businesses, which include commercial banks, savings banks, credit unions and other financial institutions have experienced low levels of borrowing activity. Additionally, increased regulation on theses upstream industries has restricted lending capacity, further diminishing the total loan volume available to loan servicing companies. As a result, industry revenue is expected to increase at an annualized rate of 1.4% to $10.6 billion in the five years to 2013. In 2013, revenue is expected to increase 3.8% due to improvements in personal and business lending as well as lower provision for credit losses costs.
When the financial crisis swept through Canada in late 2008, loan servicing companies experienced a significant rise in the provision for credit losses cost. “Loan servicing companies have an obligation to the originator of the loans to make payments, whether the borrower makes the payment to them or not,” says Jose. Consequently, industry operators were forced to make payments for borrowers when unemployment soared during the recession, thus reducing profit margins. In response, the industry underwent consolidation as many smaller industry operators did not have the funds to keep up with payments, forcing them out of the industry. Additionally, many operators became ripe for acquisition due weakened balance sheets. In the five years to 2013, IBISWorld estimates the number of industry enterprises declined at an average annual rate of 2.4% to 435. Such consolidation has helped the industry increase profit margins by taking advantage of economies of scale to lower variable costs.
The Loan Administration, Check Cashing and Other Services industry is expected to have a moderate level of concentration, with the top four firms expected to account for an estimated 49.7% of industry revenue in 2013. In the five years to 2013, the number of enterprises has decreased at an average annual rate of 2.4% to 435 due to increasingly high provision for credit losses costs and diminished fee income. These circumstances forced many smaller industry operators out of business and made many others ripe for takeover. At the same time, the number of establishments has declined at an average annual rate of 1.1% to 12,156 because after an acquisition, the acquiring company typically consolidates operations to take advantage of economies of scale.
In the five years to 2018, loan servicing companies are forecast to focus on developing technology that will lower their reliance on labour, thus further increasing profit margins. Additionally, consumer demand for lending products in upstream industries will rise as the economy makes a full recovery. Improvements in the housing sector will increase wealth and make consumers more willing to borrow, which will increase demand for loan servicing. Consequently, industry revenue is forecast to increase over the next five years.
For more information, visit IBISWorld’s Loan Administration, Check Cashing & Other Services in Canada industry report page.
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IBISWorld industry Report Key Topics
This industry services loans, most notably mortgages. It does not originate loans, which includes legally arranging and issuing the loan; servicing loans includes performing all of the administrative aspects of the loan. The industry also performs money transmission services, which includes selling and cashing traveler's checks, money orders and cashier's checks, while also renting safe deposit boxes.
Key External Drivers
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Globalization & Trade
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