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TWINO Alternative Lending Indexpowered by KPMG

Spring 2017

2© 2017 KPMG Baltics SIA, a Latvian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG

International"), a Swiss entity. All rights reserved.

Document Classification: KPMG Public

Background of alternative lending in Europe

- Alternative lending or non-bank lending is a term used to describe a range of

borrowing alternatives available to consumers and businesses in addition to

traditional bank loans. These alternative options are commonly used when

traditional bank loans are not available to an individual or a business for a variety

of reasons.

- Alternative lending demonstrated remarkable growth in Europe after the financial

crisis of 2008, when the conventional way of financing via banks became more

stringent for both households and businesses.

- In addition, in recent years the alternative lending industry has evolved into online

alternative lending involving peer-to-peer (P2P) lending platforms - marketplaces

for loans issued by alternative lenders. The use of P2P platforms enables

alternative lenders to generate extra financing for further expansion of the industry.

- Although the alternative lending market is growing rapidly and gaining significance

in the household and small and medium business sector, to date there has been

no unified supervising body, regulation or framework for operations of the

alternative lending sector. The ECB acknowledges the existence of the alternative

lending market, but does not intend to monitor its development closely due to its

insignificant volume compared to the traditional lending, at least for the time being.

- We have gathered comparable data on 23 countries in Europe regarding the

general lending environment (4 components) and specific lending conditions for

households or businesses (5 components). Alternative Lending Index is comprised

of 9 components that are equally weighted to arrive at the overall country index.

Please refer to Annex 1 for the detailed method.

- The results are graded in the index on the scale from 0 to 10, where a higher

value applies to a country with a more favourable environment for the

expansion of alternative lending. As such, the index is higher for countries

that have a higher credit gap, lower probability of obtaining a loan or more

stringent loan issuance criteria – in other words, where the alternative

lending can fill the current credit gap and other inefficiencies in the lending

market.

- Our research does not include the following European countries that currently lack

publicly accessible comparable data: Albania, Bosnia and Herzegovina, Bulgaria,

Croatia, Cyprus, Iceland, Luxembourg, Macedonia, Malta, Moldova, Norway,

Serbia, Switzerland.

Introduction

European Alternative Lending Index

- In the absence of official industry metrics, Alternative Lending Index has been

developed in cooperation between TWINO and KPMG to compare the lending

environment across European countries highlighting economies with favourable

environments for expansion of the alternative lending market.

- Please note that the index focuses exclusively on the lending environment in each

respective country and does not take into consideration regulation, although,

clearly, regulation directly impacts the development of the alternative lending

market in the given country.

- We also acknowledge that the index would change over time along with changes in

the components the index is built on. Therefore we intend to update this study to

highlight key changes across European countries.

Methodology

- Our analysis is based on the following main data sources:

- Periodic publications by the European Central Bank on credit gap, statistics on

the number of credit institutions, the amount of household credit per capita and

outstanding loans to non-financial corporations.

- Eurostat statistics on employment in financial services, cost of borrowing for

households and businesses;

- Doing business index for Getting credit index.

- For countries that are not members of the Economic and Monetary Union of the

European Union or the Euro area, we have collected data from central banks of the

respective countries, where these were available.

- Data for each of the countries in this is publication is presented as at 31 December

2016, unless stated otherwise.

Data sources




Table of contents

Page

Executive Summary 4

Alternative Lending Index 2016 5

European lending environment 2010-2016 7

Alternative Lending Index by individual

countries8

Annex 1: Methodology 32

Annex 2: Composition of Alternative Lending Index 34

Annex 3: Total volume of outstanding loans 35

Countries Page

Austria 9

Belgium 10

Czech Republic 11

Denmark 12

Estonia 13

Finland 14

France 15

Germany 16

Greece 17

Hungary 18

Ireland 19

Italy 20

Countries Page

Latvia 21

Lithuania 22

Netherlands 23

Poland 24

Portugal 25

Romania 26

Slovakia 27

Slovenia 28

Spain 29

Sweden 30

United Kingdom 31




- The highest ranked countries for alternative lending in Europe are: Hungary,

Slovenia, Latvia, Poland, Romania, Greece and Ireland. These countries have

the highest potential for the development of alternative lending in Europe building

on the current gaps and inefficiencies in the traditional lending market.

- The 5 countries with highly efficient lending markets that leave little room for

alternative lenders are: France, Germany, Netherlands, Austria, Finland and

Sweden. In these countries the existing sources of financing available to

households and corporate borrowers are sufficient and the potential for the

development of alternative lending is considered to be relatively low.

Executive summaryTop countries in Alternative Lending Index

Large differences between households and businesses

- Comparing the availability of financing to households and businesses some

countries show significant differences between the two. The indices of businesses

for Estonia, Hungary, Italy and Netherlands are at least 2 index points lower than

those of households, implying that there is more room for alternative lending to

households.

- On the contrary, the business lending index for the UK is significantly higher than

that for the household borrowers, implying that it is easier for a household to

receive a loan compared to corporate borrowers.

Key highlights on individual countries

- The credit gap for the United Kingdom and France is negative, which indicates that

the lending demand in these countries is met with a surplus.

- As concerns the size of the lending market, the leader is Germany with the total

outstanding loans of EUR 2.5 trillion, followed by France with outstanding loans

amounting to EUR 2.1 trillion. Germany is also the leader in the number of credit

institutions, with 1 694 credit institutions being located in Germany, which accounts

for approximately 34% of the total number of credit institutions in the Euro area.

- Ireland (78 institutions) is the top country by the number of credit institutions per 1

million inhabitants, with the nearest following countries Austria and Finland

following behind with 70 and 50 institutions, respectively.

- The Swedish households and businesses can borrow at the lowest interest rates in

Europe concurring with the fact that Swedish households are also the most

indebted.

Countries with the highest Alternative Lending Index and loan volume

- By combining the results of Alternative Lending Index with the overall lending

market size in the country included in the sample, we highlight the countries with

the highest market potential for alternative lending that offer high growth

opportunities in both relative and absolute terms.

- Countries with the highest market potential in terms of both the size of the

overall lending market and the alternative lending environment are: Poland,

Greece and Ireland.

- The closest runner-up countries with smaller lending markets include Hungary,

Slovenia, Latvia and Romania.

European lending market highlights 2010-2016

- The aggregate European credit gap has increased by 12 percentage points

compared to 2010. In nominal terms, the credit gap reached EUR 410 billion at the

end of the third quarter of 2016 implying there are development opportunities for

alternative lenders.

- During 2010-2016 the total density of credit institutions per 1 million inhabitants

decreased from 19 in 2010 to 15 in 2016. At the same time, the cost of borrowing

for household and businesses has been decreasing over time.

Regulatory highlights

- The approach to regulation depends on the maturity of the alternative lending

industry in each jurisdiction. As suggested by Clifford and Chance (April, 2017), the

alternative lending industry in the future will continue to grow and become more

unified across Europe, we will see more proactive regulation on a local level, in

part driven by alternative lenders themselves but also other participants of the

market.




Alternative Lending Index 2016 (1/2)

Alternative Lending Index

High (5.1 – 10)

Medium (4.0 – 5.0)

Low (0 – 3.9)

Executive summary

3.3

4.0

5.2

3.6

4.3

4.9

4.3

5.3

5.7

5.9

6.6

4.02.8

3.35.8

5.0

4.0

4.0

4.1

5.8

2.3

2.1

4.0

No data

Average

4.4

#1

#2

#3

#4

#5

#6

#7

#8

#9

#10

#11

#12

#13

#14

#15

#16

#17

#18

#19

#20

#21

#22

#23 2.1

2.3

2.8

3.3

3.3

3.6

4.0

4.0

4.0

4.0

4.0

4.1

4.3

4.3

4.9

5.0

5.2

5.3

5.7

5.8

5.8

5.9

6.6

- 1 2 3 4 5 6 7 8 9 10

Sweden

Finland

Austria

Netherlands

Germany

France

United Kingdom

Slovakia

Lithuania

Belgium

Czech Republic

Estonia

Spain

Italy

Portugal

Denmark

Ireland

Greece

Romania

Poland

Latvia

Slovenia

Hungary


Countries with the highest potential for the

development of alternative lending based

on their lending environment

Note: Please see Alternative Lending Index decomposed into general environment, indebtedness and interest rates indices in Annex 2




Executive summary

Alternative Lending Index 2016 (2/2)

Poland, Greece and Ireland - countries with high Alternative Lending Index and a medium volume of loans have favourable

opportunities for expansion of alternative lending.

Volu

me o

f lo

ans

Hig

h

France

Germany

Netherlands

Sweden

Italy

Spain

United Kingdom

Mediu

m

Austria

Finland

Denmark

Portugal

Belgium

Poland

Greece

Ireland

Low

Estonia

Czech Republic

Lithuania

Slovakia

Hungary

Slovenia

Latvia

Romania

Low Medium High


Alternative Lending Index and market size matrix

- Favourable environment for growth of the alternative

lending industry:

- Poland, Greece and Ireland that have a high Alternative

Lending Index and medium sized markets can be seen as

the countries with the highest potential for the growth of the

alternative lending industry;

- Top countries by Alternative Lending Index including

Hungary, Slovenia, Latvia, and Romania have a high

potential for growth of alternative lending, but these are

economies with comparably low volumes of loans;

- The other group of countries with a high potential for the

development of alternative lending are Italy, Spain and UK,

which have a medium Alternative Lending Index and a

large market size.

- Countries with a less favourable alternative lending

environment: France, Germany, the Netherlands, Sweden,

Austria and Finland all feature an efficient traditional lending

environment with less room for the development of alternative

lending, although these are large markets.

0 – 3.9 4.0 – 5.0 5.1 - 10

<E

UR

10

0 b

n>

EU

R 1

00

bn

>E

UR

50

0 b

n

Note: Please see the volume of household and business loans in detail in Annex 3

Countries with the highest potential for

development of alternative lending based

on lending environment and market size




Executive summary

European lending environment 2010-2016(Score from 0-100)

Getting Credit Index

Density of credit institutions

(Number of credit institutions per 1 million inhabitants)

Credit Gap

(Aggregate credit gap, in billions EUR and as % of GDP)

2010 2011 2012 2013 2014 2015 2016

62.0 62.262.6

55

57

59

61

63

65

67

69

2015 2016 2017

Indebtedness of households

(Total household loans per capita /

Annual income per capita, percent)

(Interest rate on loans to non financial corporations, consumption and

mortgage loans for households, annual percentage rate of charge)

Indebtedness of businesses

(Total loans to non financial

corporations / gross domestic product)

Cost of borrowing for households and businesses

9.1%

2.6%2.4%

Note: Aggregate credit gap had been computed by

KPMG, using individual values

99% 99%

97%

96% 95% 95%94%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2010 2011 2012 2013 2014 2015 2016

45%44%

41%

39%

38%

36% 35%

30%

32%

34%

36%

38%

40%

42%

44%

46%

2010 2011 2012 2013 2014 2015 2016

1919

1818

17

16

15

14

15

16

17

18

19

20

21

2010 2011 2012 2013 2014 2015 2016

Better general lending environment

means worse opportunities for

alternative lending

Higher cost of borrowing means higher

potential for development of alternative

lending

Lower indebtedness means higher

potential for alternative lending

-

2%

4%

6%

8%

10%

12%

14%

Consumption loans(household)

Mortgage loans(household)

Corporate loans

(20)

55

142

363 360

528

410

(0.6%)

1.7%

4.2%

10.4% 10.0%

14.0%

11.3%

(3.0%)

-

3.0%

6.0%

9.0%

12.0%

15.0%

(200)

-

200

400

600

800

1,000

2010 2011 2012 2013 2014 2015 Q32016

Credit Gap Credit Gap as % of GDP

TWINO Alternative Lending Index by individual countries




Austria

The general lending environment in Austria is well developed and it has the second highest density of credit institutions in Europe.

Due to a relatively low cost of borrowing the indebtedness of households and businesses is above the Euro area average.

TWINO Alternative Lending Index

-

2%

4%

6%

Austria Euro area

-

2%

4%

6%

8%

Austria Euro area

Employment in financial

services(Employed in financial services

as % of total employment)


(Number of credit institutions

per 1 million inhabitants)




Cost of borrowing on mortgages

(households)(Interest rate on mortgage loans to

households, annual percentage rate of

charge)

General lending environment Indebtedness

(Score from 0-100)

(Source: Doing Business Index, Eurostat) (Source: ECB, Eurostat)

Getting Credit Index Credit Gap

(Aggregate credit gap, in billions EUR and

as % of GDP)

Cost of borrowing for households

(Interest rate on consumption loans to


charge)

Cost of borrowing for businesses

(Interest rate on loans to non financial

corporations, annual percentage rate

of charge)




Cost of borrowing(Source: ECB, Eurostat)

6055

Austria Euro Area

5.86.2 6.3

5.5

7.4%8.0% 8.0%

7.0%

-

2%

4%

6%

8%

-

2

4

6

8

10

Q4 15 Q1 16 Q2 16 Q3 16

45.7%

40.0%

Austria Euro area

2.24%

1.80%

Austria Euro area

70

15

Austria Euro area

75.0% 76.5%

Austria Euro area

-

10%

20%

30%

40%

Austria Euro area

Average

4.4

2.8

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




Belgium

Alternative Lending Index in Belgium is lower than the Euro area average as its credit gap is low and the cost of borrowing is lower

than in the Euro area.


7.6

(2.8)

(0.1) 2.8

7.9%

(2.9%)

(0.1%)

2.9%

(4%)

(2%)

-

2%

4%

6%

8%

(4)

(2)

-

2

4

6

8

10

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Belgium Euro area

-

2%

4%

6%

8%

Belgium Euro area











(households)(Interest rate on mortgage loans to households,

annual percentage rate of charge)


(Score from 0-100)




as % of GDP)




charge)




of charge)





45

55

Belgium Euro Area

29.0%

40.0%

Belgium Euro area

65.7%76.5%

Belgium Euro area

1.40%

1.80%

Belgium Euro area

815

Belgium Euro area

-

10%

20%

30%

40%

Belgium Euro area

Average

4.4

4.0

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




Czech Republic

Credit is generally easy accessible and the cost of borrowing converges with the average of the Euro area, although, the

indebtedness of Czech borrowers remains below the average.


(0.4)

0.3

0.2

0.1

(1.0%)

0.8%0.6%

0.1%

(1%)

1%

(1.0)

(0.5)

-

0.5

1.0

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Czech Republic

Euro area

-

2%

4%

6%

8%

Czech Republic

Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





70

55

CzechRepublic

Euro Area

20.7%

40.0%

CzechRepublic

Euro area

55.7%

76.5%

CzechRepublic

Euro area

1.21%

1.80%

CzechRepublic

Euro area

5

15

CzechRepublic

Euro area

-

10%

20%

30%

40%

Czech RepublicEuro area

Average

4.4

4.0

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




5.0

Denmark has a relatively highly developed lending environment, although the credit gap in the economy implies there are

opportunities for alternative lending as the indebtedness of households and businesses is well below the Euro area average.


Denmark


(Score from 0-100)

(Source: Doing Business Index, Eurostat)




(Source: ECB, Eurostat)

Getting Credit Index




Credit Gap


as % of GDP)







charge)







of charge)




20.8 21.3 20.9 20.2

32.5% 33.0% 32.1% 30.9%

-

7%

14%

21%

28%

35%

-

10

20

30

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Denmark Euro area

-

2%

4%

6%

8%

Denmark Euro area


70

55

Denmark Euro Area

16.6%

40.0%

Denmark Euro area

34.0%

76.5%

Denmark Euro area

1915

Denmark Euro area

2.01%1.80%

Denmark Euro area

-

10%

20%

30%

40%

Denmark Euro area

Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Denmark




Access to credit and the density of credit institutions is relatively high in Estonia, resulting in one of the best lending environments in

Europe. The cost of borrowing for households remains higher than the Euro area average.


Estonia

0.50.5 0.4

0.5

11.8%10.8%

10.1%11.0%

-

4%

8%

12%

-

0.2

0.4

0.6

0.8

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Estonia Euro area

-

2%

4%

6%

8%

Estonia Euro area

70

55

Estonia Euro Area

35.9%40.0%

Estonia Euro area

66.1%76.5%

Estonia Euro area

27

15

Estonia Euro area

1.22%

1.80%

Estonia Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





-

10%

20%

30%

40%

Estonia Euro area

Average

4.4

4.1

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




2.3

Historically low cost of borrowing for households and businesses has led to relatively high levels of indebtedness in Finland. Finland

has one of the best general lending environments in Europe.


Finland

(0.9) (0.5)

1.7 2.1

(1.9%) (1.0%)

3.6%

4.4%

(3%)

(1%)

1%

3%

5%

(3.0)

(2.0)

(1.0)

-

1.0

2.0

3.0

4.0

5.0

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Finland Euro area

-

2%

4%

6%

8%

Finland Euro area

65

55

Finland Euro Area

36.3%40.0%

Finland Euro area

90.6%

76.5%

Finland Euro area

1.20%

1.80%

Finland Euro area

50

15

Finland Euro area

-

10%

20%

30%

40%

Finland Euro area











(households)(Interest rate on mortgage loans to

households, annual percentage rate of charge)


(Score from 0-100)




as % of GDP)


(Interest rate on consumption loan to


charge)


(Interest rate on loan to non financial


of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




France

2.08%

1.80%

France Euro area

France is one of the 2 countries with a negative credit gap and a higher than average indebtedness of households and businesses.

Surprisingly, its scores below the average in the Getting Credit Index.


-7.3

-1.8 -2.4

-0.8

(1.4%)

(0.3%)(0.5%)

(0.2%)

(2%)

(1%)

(1%)

(1%)

(1%)

(1%)

(0%)

(0%)

(15)

(10)

(5)

-

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

France Euro area

-

2%

4%

6%

8%

France Euro area

7

15

France Euro area

79.7% 76.5%

France Euro area

43.1%40.0%

France Euro area

5055

France Euro Area

-

10%

20%

30%

40%

France Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

3.6

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




Germany

The German lending market is largely self sufficient and meets the domestic credit demand. The cost of borrowing is at the Euro

area level for households and businesses and below the Euro area for mortgages.


45.040.1 39.6

36.1

6.4%

5.7% 5.6%5.1%

-

1%

2%

3%

4%

5%

6%

7%

-

15

30

45

60

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Germany Euro area

-

2%

4%

6%

8%

Germany Euro area

70

55

Germany Euro Area

29.9%

40.0%

Germany Euro area

77.7% 76.5%

Germany Euro area

1.80% 1.80%

Germany Euro area

2115

Germany Euro area

-

10%

20%

30%

40%

Germany Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

3.3

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




5.3

Greek businesses maintain a high level of indebtedness in the presence of a relatively high cost of borrowing. The estimated credit

gap is growing constantly resulting in a high Alternative Lending Index.


Greece

5.4 5.86.7

7.711.6%12.6%

14.6%

16.6%

-

4%

8%

12%

16%

-

2

4

6

8

10

12

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Greece Euro area

-

2%

4%

6%

8%

Greece Euro area

5055

Greece Euro Area

50.4%

40.0%

Greece Euro area

70.9% 76.5%

Greece Euro area

1.74% 1.80%

Greece Euro area

3

15

Greece Euro area

-

10%

20%

30%

40%

Greece Euro area











(households)(Interest rate on mortgage loans to households, annual

percentage rate of charge)


(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High




6.6

Hungary has a high Alternative Lending Index, as the indebtedness of households and businesses is significantly below the Euro

area average, and the cost of borrowing for households is more than 3 times higher than that in the Euro area.


Hungary

8.7 8.6 8.1

9.4

36.2% 35.9%33.6%

38.0%

-

10%

20%

30%

40%

-

2

4

6

8

10

12

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

8%

Hungary Euro area

* Data not available

75

55

Hungary Euro Area

17.0%

40.0%

Hungary Euro area

28.1%

76.5%

Hungary Euro area

1.37%

1.80%

Hungary Euro area

10 15

Hungary Euro area

-

10%

20%

30%

40%

Hungary Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

High




5.2

68.7%76.5%

Ireland Euro area

The highly developed general lending environment in Ireland has not been able to meet the credit demand as the credit gap has

increased dramatically, resulting in a high Alternative Lending Index for the country.


Ireland6.3

3.17%

1.72%

Ireland Europe

78

15

Ireland Europe

-

2%

4%

6%

Ireland Euro area

-

2%

4%

6%

8%

Ireland Euro area

3.7

15.1 12.6

30.6

6.3%

25.9%21.5%

50.1%

-

7%

14%

21%

28%

35%

42%

49%

-

10

20

30

40

50

60

Q4 15 Q1 16 Q2 16 Q3 16

70

55

Ireland Euro Area

-

10%

20%

30%

40%

Ireland Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High

17.9%

40.0%

Ireland Euro area




4.3

It is relatively difficult to obtain a loan in Italy and the credit gap is significant, while the Alternative Lending Index is at the European

average. Italy does not have a high Alternative Lending Index due to the high indebtedness of businesses and the cost of borrowing

being only slightly above the Euro area average.


Italy

60.066.5 67.3 69.3

15.4%17.0% 17.2% 17.7%

-

5%

10%

15%

20%

-

15

30

45

60

75

90

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Italy Euro area

-

2%

4%

6%

8%

Italy Euro area

56.4%

76.5%

Italy Euro area

46.9%

40.0%

Italy Euro area

45

55

Italy Euro Area

1.76% 1.80%

Italy Euro area

1015

Italy Euro area

-

10%

20%

30%

40%

Italy Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




5.8

Despite being one of the top countries as concerns the ease of obtaining a loan, the wide spread for the cost of borrowing for

household consumption and the relatively low level of indebtedness combined with a significant credit gap results in a high

Alternative Lending Index for Latvia.


Latvia

1.51.7

1.51.3

28.2%31.6%

28.1%

23.4%

-

5%

10%

15%

20%

25%

30%

35%

-

0.5

1.0

1.5

2.0

2.5

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Latvia Euro area

-

2%

4%

6%

8%

Latvia Euro area

85

55

Latvia Euro Area

28.0%

40.0%

Latvia Euro area

30.6%

76.5%

Latvia Euro area

2.25%

1.80%

Latvia Euro area

29

15

Latvia Euro area

-

10%

20%

30%

40%

Latvia Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High




4.0

Lithuania has a relatively efficient lending market, with the credit gap in 2016 decreasing from 13.2% to 6.4%. The cost of borrowing

for household mortgages and businesses has been on a par with the average of the Euro area.


Lithuania

1.1

0.9

0.7

0.6

13.2%

10.4%

8.4%

6.4%

-

4%

8%

12%

-

0.4

0.8

1.2

1.6

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Lithuania Euro area

-

2%

4%

6%

8%

Lithuania Euro area

70

55

Lithuania Euro Area

21.5%

40.0%

Lithuania Euro area

50.6%

76.5%

Lithuania Euro area

0.91%

1.80%

Lithuania Euro area

30

15

Lithuania Euro area

-

10%

20%

30%

40%

Lithuania Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




The relatively high level of indebtedness of households and businesses as well as the relatively low cost of borrowing results in an

overall low Alternative Lending Index, despite the high credit gap estimated by the ECB.


Netherlands

35.338.0 38.6

35.7

21.5%22.9% 23.2%

21.2%

-

5%

10%

15%

20%

25%

-

15

30

45

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Netherlands Euro area

-

2%

4%

6%

8%


5055

Netherlands Euro Area

54.5%

40.0%


94.7%

76.5%


1.69% 1.80%


6

15


-

10%

20%

30%

40%















(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

3.3

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




5.8

Poland is an attractive lending market with a high Alternative Lending Index due to the low level of indebtedness of households and

businesses as well as a higher cost of borrowing compared to the Euro area average.


Poland

6.3 6.1 6.0 5.6

6.3% 6.1%

4.7%

5.6%

-

1%

2%

3%

4%

5%

6%

7%

-

2

4

6

8

10

12

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Poland Euro area

-

2%

4%

6%

8%

Poland Euro area

75

55

Poland Euro Area

16.8%

40.0%

Poland Euro area

52.7%

76.5%

Poland Euro area

16 15

Poland Euro area

1.61%1.80%

Poland Euro area

-

10%

20%

30%

40%

Poland Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High




4.9

The large credit gap and a slightly higher than the Euro area average cost of borrowing for households and businesses have

resulted in an index being higher than the European average.


Portugal

17.7 18.5 18.9 19.4

41.1% 42.9% 43.7% 44.4%

-

10%

20%

30%

40%

50%

-

10

20

30

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Portugal Euro area

-

2%

4%

6%

8%

Portugal Euro area

45

55

Portugal Euro Area

41.7%40.0%

Portugal Euro area

107.2%

76.5%

Portugal Euro area

1.73% 1.80%

Portugal Euro area

14 15

Portugal Euro area

-

10%

20%

30%

40%

Portugal Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




5.7

Due to its low level of indebtedness of household and corporate borrowers, as well as a higher than the average cost of borrowing

Romania has a high Alternative Lending Index. This is notwithstanding the top rank in Getting Credit index.


Romania

4.0

3.4 3.33.0

11.8%

9.9% 9.7%8.5%

-

4%

8%

12%

-

1

2

3

4

5

6

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Romania Euro area

-

2%

4%

6%

8%

Romania Euro area

85

55

Romania Euro Area

13.2%

40.0%

Romania Euro area

24.6%

76.5%

Romania Euro area

1.12%

1.80%

Romania Euro area

2

15

Romania Euro area

-

10%

20%

30%

40%

Romania Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High




4.0

The spread between the cost of borrowing for households and businesses with the rest of the Euro area has decreased in the

recent years, resulting in a low Alternative Lending Index for Slovakia.


Slovakia

1.0

1.2 1.2

1.55.2%

6.3% 6.1%

7.5%

-

2%

4%

6%

8%

-

0.5

1.0

1.5

2.0

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Slovakia Euro area

-

2%

4%

6%

8%

Slovakia Euro area

65

55

Slovakia Euro Area

21.1%

40.0%

Slovakia Euro area

1.13%

1.80%

Slovakia Euro area

5

15

Slovakia Euro area

-

10%

20%

30%

40%

Slovakia Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium

78.3%76.5%

Slovakia Euro area




5.9

General difficulty to obtain a loan in Slovenia, a relatively low level of indebtedness of households and businesses as well as the low

density of credit institutions are the main reasons for the high Alternative Lending Index for the country.


Slovenia

3.2 3.3 3.3 3.3

34.8% 35.6% 35.3% 34.7%

-

10%

20%

30%

40%

-

1

2

3

4

5

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Slovenia Euro area

-

2%

4%

6%

8%

Slovenia Euro area

23.4%

40.0%

Slovenia Euro area

43.4%

76.5%

Slovenia Euro area

35

55

Slovenia Euro Area

1.26%

1.80%

Slovenia Euro area

915

Slovenia Euro area

-

10%

20%

30%

40%

Slovenia Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

High




4.3

Alternative Lending Index of Spain is close to the average. Its enormous credit gap (the highest in Europe) is set back by already

relatively high indebtedness of households and businesses as well as the relatively low cost of borrowing.


Spain

145.5 149.8 150.7 151.7

53.8% 55.0% 54.8% 54.8%

-

10%

20%

30%

40%

50%

60%

-

40

80

120

160

200

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Spain Euro area

-

2%

4%

6%

8%

Spain Euro area

6055

Spain Euro Area

45.8%

40.0%

Spain Euro area

86.7%76.5%

Spain Euro area

1.51%1.80%

Spain Euro area

4

15

Spain Euro area

-

10%

20%

30%

40%

Spain Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Medium




2.1

Sweden with its cost of borrowing below the Euro area average receives the lowest index and implies the lowest potential for

development of the alternative lending market.


Sweden

3.3

8.28.4

9.4

3.1%

7.6% 7.9%9.0%

-

2%

4%

6%

8%

10%

-

2

4

6

8

10

12

14

Q4 15 Q1 16 Q2 16 Q3 16

-

2%

4%

6%

Sweden Euro area

-

2%

4%

6%

8%

Sweden Euro area

55 55

Sweden Euro Area

46.6%

40.0%

Sweden Euro area

133.9%

76.5%

Sweden Euro area

16 15

Sweden Euro area

1.22%

1.80%

Sweden Euro area

-

10%

20%

30%

40%

Sweden Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





Average

4.4

Jan 2014 Dec 2016 Jan 2014 Dec 2016

Jan 2014 Dec 2016

Low




4.0

In 2016 the UK closed its credit gap and reached a credit surplus of 4.3%. In the recent years the cost of borrowing in the UK has

remained relatively close to the Euro area average, which has resulted in a medium Alternative Lending Index for the UK.


United Kingdom6.3

100.5

73.8 15.7

(22.0)

19.7%

14.5%

3.1%

(4.3%) (7%)

-

7%

14%

21%

(50)

-

50

100

150

Q4 15 Q1 16 Q2 16 Q3 16-

2%

4%

6%

8%

United Kingdom Euro area

75.3% 76.5%

UnitedKingdom

Euro area

19.0%

40.0%

UnitedKingdom

Euro area

75

55

UnitedKingdom

Euro Area

1.77% 1.80%

UnitedKingdom

Euro area

5

15

UnitedKingdom

Euro area

-

10%

20%

30%

40%

United Kingdom

Euro area














(Score from 0-100)




as % of GDP)




charge)




of charge)





-

2%

4%

6%

United Kingdom

Euro area

Average

4.4

Mar 2015 Dec 2016 Mar 2015 Dec 2016

Mar 2015 Dec 2016

Medium




Annex 1

Methodology (1 of 2)

- General Lending Environment: there are four variables to evaluate the general

lending environment – credit gap, employment in financial services as compared

to total employment, getting credit index, and density of credit institutions.

- Credit gap – the variable is measured as per cent of GDP, in order not to

account for the size of economy. Credit gap is calculated as the difference

between actual loans to GDP ratio and the long term trend of loans to GDP

ratio. The long term trend of loans to GDP ratio had been estimated by the

European Central Bank and the Bank of International Settlements using The

Hodrick-Prescott filter. The variable has a positive contribution to the index,

meaning, the higher the credit gap in the country, the more underserved the

market is.

- Employment in financial services – the variable is measured as the total

employment in financial services divided by the total employment in the

country. The variable has a positive relationship with the index, the higher the

employment in the financial services, the more potential for the development

of alternative lending.

Note: MFIs – monetary financial institutions

- Getting credit index – the variable is measured as an index between 0 and

100, with 100 indicating that credit is easily accessible in the country.

Therefore, higher values have a negative contribution to Alternative Lending

Index, indicating that the existing lending market is well developed.

- Density of credit institutions – the variable is measured as the number of

credit institutions in the country divided by total population (aged 15+). The

variable has a negative effect on the Alternative Lending Index as the higher

the number of credit institutions, the more difficult it is for new lenders to step

in.

- Indebtedness: measures the debt burden of households and businesses.

- Indebtedness of households – the variable is measured as the total

outstanding loans per capita at the end of the year divided by net annual

income per capita. The variable contributes negatively to the index; the higher

the indebtedness of households, the less additional borrowing they need.

- Indebtedness of businesses – the variable is measured as the total

outstanding corporate loans at the end of the year divided by total annual

gross domestic product. The variable contributes negatively to the index;

higher indebtedness of businesses is associated with a higher leverage and

lower demand for additional borrowing.

Dimension Variable Form Source

- Lending Environment Credit Gap Credit gap as % of total GDPEuropean Central Bank, Bank of International

Settlements

Employment in financial services Employment in financial services / Total employment in the country, as % Eurostat

Getting Credit Index (0-100) Getting Credit Index (0-100) Doing Business Index

Density of credit institutions Number of credit institutions / Population in millions, as % European Central Bank

- Indebtedness Indebtedness of households Total household credit per capita/Total annual net income per capita, as % European Central Bank, Eurostat

Indebtedness of businesses Total corporate loans outstanding / GDP, as % European Central Bank, Eurostat

- HouseholdsInterest rate on consumption loans for

householdsAggregate MFIs interest rate on new business, as % Eurostat, Central Banks of respective countries

Interest rate on mortgages Aggregate MFIs interest rate on new business, as % Eurostat, Central Banks of respective countries

Cost of borrowing for businesses Aggregate MFIs interest rate on new business, as % Eurostat, Central Banks of respective countries




Annex 1

Methodology (2 of 2)

- Cost of borrowing: is measured across three categories, indicating affordability

of entities to offer alternative lending.

- Interest rate on consumption loans – the variable is measured as an annual

percentage rate of charge on new issues of consumption loans. The variable

has a positive effect on the index. The higher the interest rate on consumption

loans, the more opportunities there are for alternative lenders to provide

additional lending.

- Interest rate on mortgages – the variable is measured as an annual

percentage rate of charge on new issues of mortgage loans. The variable

also has a positive relationship with the index, meaning, the higher the

interest rate, the more opportunities there are for alternative lenders to

provide borrowing.

- Interest rate on loans to non-financial institutions – the variable is measured

as an annual percentage rate of charge on new loan issues. The variable

contributes positively to the index, meaning, the higher the interest rate, the

more underserved the market is, implying there is potential for alternative

lenders to provide additional loans.

Limitations of the research: KPMG acknowledges that this research may not

completely represent the actual market situation and the following aspects should be

taken into account when evaluating the results.

- Regulatory aspects: As indicated earlier in the research, regulation plays a

crucial role in the lending market and may be the key aspect which explains the

differences observed between the actual market situation and the results of this

research. Many economies have not yet developed regulations for alternative

lending, which makes these countries more attractive to alternative lenders than

strictly regulated markets.

- Omitted variable bias: Apart from regulatory aspects, there are other factors in

economies which may affect the results in one or the other way. Such factors

could be competition between existing players, possibilities for recoverability in

case of defaults, the role of debt market in the economy, economies’ openness to

foreign investors, future growth prospects of the country, political uncertainty and

many more. These factors require qualitative evaluation rather than quantitative.




Annex 2

Composition of Alternative Lending Index

Source: KPMG analysis

Results for Alternative Lending Index - 2016

Ranking CountryAlternative

Lending Index

General lending

environmentBusines lending Household lending

1 Hungary 6.6 4.8 7.1 9.8

2 Slovenia 5.9 6.8 5.5 4.8

3 Latvia 5.8 4.3 5.9 7.9

4 Poland 5.8 3.5 7.8 7.7

5 Romania 5.7 3.3 8.5 7.0

6 Greece 5.3 5.5 5.5 5.0

7 Ireland 5.2 5.2 5.9 4.7

8 Denmark 5.0 5.0 5.0 5.0

9 Portugal 4.9 6.6 3.7 3.3

10 Italy 4.3 5.7 1.7 4.2

11 Spain 4.3 6.3 1.8 3.2

12 Estonia 4.1 3.0 3.7 5.8

13 Czech Republic 4.0 3.3 4.8 4.5

14 Belgium 4.0 4.7 3.7 3.3

15 Lithuania 4.0 2.4 5.6 5.1

16 Slovakia 4.0 3.7 5.0 3.7

17 United Kingdom 4.0 3.6 5.6 3.3

18 France 3.6 5.0 1.5 3.1

19 Germany 3.3 3.6 3.7 2.7

20 Netherlands 3.3 5.5 0.1 2.4

21 Austria 2.8 2.9 1.6 3.5

22 Finland 2.3 2.2 2.7 2.1

23 Sweden 2.1 3.9 1.0 0.5

Higher general lending environment index

means better opportunities for alternative

lending

Higher business lending index means higher

potential for development of alternative

lending

Higher household lending index means higher

potential for alternative lending

Higher Alternative Lending Index means

higher potential for alternative lending

Alternative Lending Index has equal weights of all

individual components.

4 components 2 components 3 components




2 510

2 1251 988

1 409

1 215

843

585

318

289

224203 195 189

138

114

89

47 47 3819 17 15 12

-

50

100

150

200

250

300

350

400

-

300

600

900

1 200

1 500

1 800

2 100

2 400

2 700

EU

R b

illionE

UR

bill

ion

Total volume of household and business loans as at 31 December 2016

Annex 3

Total volume of outstanding loans

Volume of loans:

High

Medium

Low

Note: Business loans - loans to non-financial corporations.

Source: European Central Bank; KPMG analysis.


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International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we

endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue

to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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KPMG Baltics SIA

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Riga, LV-1013

Latvia

Julija Masane–Ose

Director, Deal Advisory

[email protected]

TWINO is one of the largest marketplace lenders in Europe. It offers investors

the chance to earn premium returns from unsecured consumer loans across

Georgia, Latvia, Denmark, Russia, Spain and Poland. Since it was established

in 2009, TWINO Group has originated over €420m of lending. The company

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