No debt default crisis

Kredinor SA’s chief analyst Magnus Solstad is pleased to note that the Covid-19 pandemic has not led to a surge in defaulted debts. Nor does he believe there will be a debt default crisis when society eventually reopens. Indeed, the facts show a significant decrease in the number of debts being sent for collection during the pandemic, and a doubling in the personal saving rate.

During almost every economic crisis in recent decades, figures have shown a surge in the number of debts sent for collection. For example, during the 2008–2009 credit crunch, the number leapt by up to 20 per cent.

“We are now on our way out of the Covid crisis, and this time there was no increase in the number of debt collection cases. On the contrary, the facts show a significant decrease in the number of debts being sent for collection and a doubling in the personal saving rate,” says Solstad.

For Norway as a whole, there has not been, nor will there be, a debt default crisis as a result of the Covid-19 pandemic.

He dislikes the fact that several actors have tried to create the impression of a debt crisis.

“Despite regularly seeing doomsday prophesies and fear-mongering about a looming crisis, none of this has materialised for the vast majority of people in Norway.” Solstad admits that certain municipalities and business sectors have taken a beating, but adds that this is the exception to the rule.

“The pandemic has had a major impact on some local communities and some few business sectors. Take the municipality of Ullensaker, whose economic powerhouse is Gardermoen Airport, for example. But this is definitely an exception. For Norway has a whole, there has not been, nor will there be, a debt default crisis as a result of the Covid-19 pandemic.”

A combination of factors explains the absence of a crisis.

“The authorities have constantly adjusted the economic support measures, company insolvencies are failing to appear, and rules governing furloughing have been extended. In addition, there are clear signs that people have become accustomed to a lower level of consumption. Another key factor is the existence of debt registers, which were established just under two years ago. It has become considerably more difficult to obtain consumer financing without having the wherewithal to keep up the repayments,” explains Solstad.

We know that the number of debt collection cases will rise once again, as a natural consequence of the increase in credit-funded spending. But it would be an exaggeration to say we are experiencing a default crisis.

Kredinor’s chief analyst thinks we will have to wait until the end of 2021 before we see any noticeable rise in the debt collection figures. We know that the number of debt collection cases will rise once again, as a natural consequence of the increase in credit-funded spending. But it would be an exaggeration to say we are experiencing a default crisis.

“It will take at least five months from the complete or partial reopening of society until the impact can be seen in the debt collection figures. We will therefore be approaching Christmas before we see a rise in debt collection after reopening,” says Solstad.

 

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