FICO Survey: North American Bankers Predict Rise in Delinquencies on Credit Cards and Consumer Loans
Nearly half of respondents forecast an increase in credit card delinquencies, the highest level since 2011
TORONTO, April 8, 2014 /CNW/ - Risk appears to be reemerging as a concern in the consumer credit sector as the economic recovery moves into its fifth year. The latest quarterly survey of U.S. and Canadian bank risk professionals found expectations for delinquencies on auto loans and credit cards, as well as total delinquencies on all consumer loans, to be at their highest levels since Q4 2011.
In the survey from FICO (NYSE:FICO), a leading predictive analytics and decision management software company, 44 percent of respondents expected delinquencies on credit cards to increase during the next six months, while 35 percent of respondents said delinquencies on car loans would increase. Among those polled, 43 percent expected the total number of delinquencies on all consumer loans to increase.
This is the fourth consecutive quarter in which respondents' pessimism has increased with regard to delinquencies on auto loans and credit cards. However, the survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), found re-leveraging is likely to continue and perhaps accelerate.
"We've seen concerns about delinquencies creeping up for a few quarters," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "This can be interpreted as a healthy sign after lenders spent much of the past five years constricting credit availability and being risk-averse. These numbers mean more people are gaining access to credit, but we need to keep a close eye on the risk levels of these new loans. If delinquencies reach an uncomfortable level, we may see lenders pull back again."
In the survey, 65 percent of bankers expected average balances on credit cards to increase over the next six months. That is the highest percentage of respondents expecting balances to increase in the survey's four-year history. In addition, 61 percent of those polled expected the amount of new credit requested by consumers to increase, which is the second-highest figure ever recorded for that question.
"In Canada, results show that 59 percent of respondents believe consumers will request more credit in the next six months," says Robin Findlay, senior director and head of FICO Canada. "This is the third consecutive quarter in which the Canadian respondents believe consumers will request an increase. This adds an interesting layer as some of our major lenders have recently lowered their rates in order to generate interest in additional credit. However, as our survey has found, delinquency rates continue to rise, which may make for a compelling next couple of months as Canadian lenders react to the increased risk levels."
Small Business Lending Seen as Stable
Survey respondents indicated lending for small businesses would remain on its current trajectory and possibly improve. Ninety-four percent of those polled expected the amount of credit requested by small businesses to remain steady or increase over the next six months. Eighty-four percent of respondents believed the amount of credit extended to small businesses would remain steady or increase. And 74 percent of respondents expected the supply of credit for small business loans to satisfy demand.
A detailed report of FICO's quarterly survey is available at http://alturl.com/tb67q. The survey included responses from 229 risk managers at banks throughout the U.S. and Canada in February 2014. FICO and PRMIA extend a special thanks to Columbia Business School's Center for Decision Sciences for its assistance in analyzing the survey results.
A detailed report of FICO's quarterly survey is available at https://www.prmia.org/sites/default/files/references/PRMIA_FICO_SURVEY_Q1_2014.pdf. The survey included responses from 229 risk managers at banks throughout the U.S. and Canada in February 2014. FICO and PRMIA extend a special thanks to Columbia Business School's Center for Decision Sciences for its assistance in analyzing the survey results.
The Professional Risk Managers' International Association (PRMIA) is a higher standard for risk professionals, with 65 chapters and more than 90,000 members worldwide. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education, including the Professional Risk Manager (PRM) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found at www.PRMIA.org.
FICO (NYSE: FICO) is a leading analytics software company, helping businesses in 90+ countries make better decisions that drive higher levels of growth, profitability and customer satisfaction. The company's groundbreaking use of Big Data and mathematical algorithms to predict consumer behavior has transformed entire industries. FICO provides analytics software and tools used across multiple industries to manage risk, fight fraud, build more profitable customer relationships, optimize operations and meet strict government regulations. Many of our products reach industry-wide adoption. These include the FICO® Score, the standard measure of consumer credit risk in the United States. FICO solutions leverage open-source standards and cloud computing to maximize flexibility, speed deployment and reduce costs. The company also helps millions of people manage their personal credit health.
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