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Thursday, 23 February 2012

Dutch people borrowed more money in 2011, using more expensive ways than in the past. This is a bearish signal!

Today, the Dutch Central Bureau of Statistics ( presented the research results for 2011 on private debt in The Netherlands. 

The results were surprising and partly shocking. Dutch people not only borrowed more money in 2011, but they also borrowed it in a much more expensive way: by increasingly using credit card debt and by overdrawing their current account. Both ways of borrowing are extremely expensive with interest rates ranging from 11%-17%.

Here are the pertinent snips of the CBS report:

In 2011, Dutch consumers entered into new consumptive loan contracts to an amount of €9.7 bln. That is €0.5 bln more than in 2010. The increase is attributable to a strong increase in credit card loans. Dutch consumers are also increasingly overdrawing their current accounts. This is part of a trend in which consumers use more flexible, but much more expensive types of lending.

After two years in which the Dutch used less credit, 2011 showed increased credit usage, compared to one year earlier. However, the amount of €9.7 bln is still much lower than the €10.9 bln of 2008. In 2011, €4.5 bln in credit card loans has been supplied. That is €0.5 bln more than one year earlier. On the other hand, the amount of overdraft credit decreased by €0.2 bln.

For the first time more credit card credit has been withdrawn than overdraft credit: €4.5 bln against €3.9 bln. Since 2008, the withdrawal of overdraft credit has been decreasing, while withdrawal of credit card credit lines has been increasing. This is caused by the tightened conditions for overdraft credit, while conditions for credit card debt and overdrawing the current account have softened.

Also in 2011, consumers have been increasingly overdrawing their current accounts. For the first time the threshold of €10 bln has been passed. The share of current account debt in the total consumptive debt increased to 37% in 2011, from 31% in 2006. Total consumptive debt, including current account debt, amounted to €27.5 bln last year; €0.2 bln more than last year.

While perma-bulls might see these figures as bullish, for me this is a very bearish signal. In combination with the Dutch consumer confidence that is almost at all-time lows and the fact that consumption in The Netherlands has been lagging last year, it means in my opinion that people are filling financial potholes by creating new ones.

A disturbing trend here is that the access to relatively cheap credit, like overdraft credit, is hindered by new, tighter lending rules that are set by the Dutch Authority Financial Markets (AFM) and the banks. Although these AFM rules by themselves make much sense, they pinch off the cheaper credit lines, while the floodgates for extremely expensive overdrawing debt and credit card debt are wide open.

The interest rates for both overdrawing a current account and using credit card debt are in most cases between 11% and 17% annually. This will reinforce the debt problems that are already widespread in The Netherlands. And whether this credit usage is out of necessity or to ‘keep up appearances’ doesn’t matter much. It is a worrisome development.

I took the consumptive lending data for the last ten years from the impressive CBS online database Statline ( and created two charts with it.

The first chart shows the development of the outstanding amounts for various kinds of loans, while the second chart shows the development of overdrawing current accounts. Both chart amounts are in millions of euro's:

Outstanding debt per loan type in The Netherlands 2002-2011
Data courtesy of: 

Current account debt in The Netherlands 2002-2011
Data courtesy of: 
All in all, it is very worrisome data that has been supplied by the CBS today. 

It means in my opinion that the financial health of the Dutch consumers is deteriorating at the moment. This is a very bearish signal for 2012.

Update February 23, 2012

Dear Reader,

Mea Culpa, I have made a mistake by being naive on the quality of the CBS data and press releases, which is mostly flawless, but not yesterday.

Today, the Dutch daily newspaper "Volkskrant" wrote a snappy article on yesterday's CBS conclusion that credit card debt had increased since 2008, while the first chart in my article clearly shows that it didn't at all. I should have seen it myself, but I failed to do so. 

I feel sorry for this mistake, but I want to share it for the purpose of being transparent.  

There has been a clear increase in the amount of credit card debt, but that was in the period 2002-2006. After that period, credit card debt has been extremely stable over the years.

The Volkskrant went even further by also questioning the increase in people overdrawing their current account (see chart 2). The Dutch national bank De Nederlandsche Bank (DNB) had supposedly stated to the Volkskrant that it had no knowledge of such an increase.

I don't know if this is true, but in this case and based on the second chart, I have no reason to doubt the otherwise reliable CBS.

I hope that this incident helps me to be even more sharp next time.


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