With the news coming out daily about prime lenders facing higher and higher impairment charges it begs the question of who will do better during a downturn, specialist/sub prime lenders or prime high street banks?
Banks stated that they feel impairments of up to 90 basis points were likely, some have revised this figure higher several times with NIB predicting impairment of upwards of 300 basis points. Sub-prime lenders on the other hand start off with predictions of high impairment and they price and gauge the risk accordingly from the outset. Given that starting point, could it be a case that Irish specialist lenders may come out the other side of the liquidity crisis with an overall book that fares proportionately on margins than other prime lenders?
To answer this question we must first consider margins, with many banks typical margin is from 1% to 1.5% on average, however, with many prime lenders this margin is lower because of low margin trackers that were a point of heavy competition between …