Experian Risk
Radar Report 2023
Australia has entered a heightened credit risk environment with the majority of risk leaders reporting increased rates of hardship and defaults and almost all predicting a tougher 12 months ahead. To navigate their organisations through the volatile economic environment, the pressure is on risk strategy. To take a more proactive approach to managing customers and the internal and external risks to their loan book, risk leaders are looking to increase investment in data and technology.
Risk leaders are already seeing an increase in risk factors across their organisations in recent months and the vast majority are predicting it is only likely to get more challenging in 2024.
Risk leaders see heightened risks
According to most risk leaders (93%), Australia will see higher credit stress, missed repayments and delinquencies in the next 12 months.
Two thirds (66%) say they have already seen an increased risk of consumer defaults and hardship in the last six months.
The intensified risk landscape has also led to lenders tightening their lending criteria and assessments.
Australian risk leaders agree that the much-publicised concerns about “interest rate cliffs”, where borrowers coming off interest-only loans struggle to manage their higher repayments, is a justified cause for concern. However, they disagree on when and how many spikes we’ll see.
The research shows credit stress and rates of missed repayments are getting worse with every new generation of borrower.
More than half (57%) have strengthened their risk measures in recent times to better protect their organisation.
To protect the customer and the loan book, it’s just as important to monitor a consumer’s ability to afford a loan throughout the life of the agreement to minimise financial stress and maximise financial wellbeing.
Only 16% of Australian risk leaders surveyed were using enough data and sophisticated technology systems to identify red flags in the transaction data, and only 7% had the capability to see a missed payment with other lenders.
To protect potentially vulnerable consumers, organisations need to be able to spot them in their portfolios and get a full picture of their circumstances, in real-time so that they can support and transact with them in the best possible ways.
About half of risk leaders (45%) in Australia acknowledged that it’s tougher for credit applicants to get approval in this market.
Tough market
for borrowers
45%
Interest rate cliffs more like shock waves
believe Australia has already started to experience
multiple waves of increased borrower hardship
believe Australia will soon experience multiple waves
of increased borrower hardship
believe Australia has
already experienced an
interest rate cliff
believe that Australian
borrowers won’t experience
a cliff, wave or waves of
hardship
Volatile vintage
Multiple risk factors at play
Responsible lending and financial hardship
Customer financial welfare
Local regulation and compliance
Data privacy and cyber security
The top concerns for risk leaders influencing current risk strategy included:
Risk leaders need to know where to look for signs of stress
34%
30%
9%
20%
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34%
30%
20%
9%
20.0%
40.0%
60.0%
80.0%
78%
70%
68%
68%
Economic outlook
0.0%
64%
100.0%
Just over half of risk leaders (55%) said the earliest their organisation could reliably identify that a customer is in a position of financial stress was not until they missed a repayment
Almost a quarter (23%) of lenders do not know if a customer is in financial stress until they are contacted.
55%
23%
Deeper insights lead to deeper relationships
93%
66%
57%
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Borrowers that took out a home loan since 2019 are three times more likely to miss repayments than those that took out a home loan before 2015 and
twice as likely as home loans opened between 2016 and 2019.
3x
2x
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
89%
80%
75%
73%
68%
Domestic abuse or violence or financial abuse
Mental health issues impacting financial stability
Elder abuse
Gambling addiction
Unstable income or employment status
High levels of debt relative to income
Age related factors, such as seniors on fixed incomes
Changes in family or household circumstances
Inadequate savings or emergency funds
Health related financial burdens
68%
61%
57%
52%
50%
More to be done to address customer vulnerability
16%
7%
Our third annual report blends insights from 75 Australian risk leaders, Forrester research of 889 global business leaders (66 from Australia), and Experian Credit Bureau data to offer a comprehensive view of current credit risk management and upcoming trends.
