consumer loan delinquencies set to rise
TRANSCRIPT
Consumer Loan Delinquencies Set to Rise: Good News or Bad News?
© 2014 Fair Isaac Corporation. All rights reserved. 2
FICO’s quarterly survey of North American bank risk professionals found expectations for delinquencies on credit cards and auto loans, and for new delinquencies on all consumer loans, to be at their highest levels since Q4 2011. That’s definitely bad news. Or…maybe…it’s good news.
Delinquencies Ready for Take Off
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q114
Q213
Q313
Q413
% of respondents expecting credit card delinquencies to increase
% of respondents expecting auto loan delinquencies to increase
% of respondents expecting new delinquencies on all consumer loans to increase
60%
50%
40%
30%
20%
10%
0%
© 2014 Fair Isaac Corporation. All rights reserved. 3
Pessimism (and Optimism) Is in the Eye of the BeholderIn the Q1 2014 survey, 44% of respondents expected delinquencies on credit cards to increase during the next six months, while 35% said delinquencies on auto loans would increase. Some 43% expected new delinquencies on all consumer loans to increase.Credit Cards Auto Loans All Consumer Loans
% of respondents expecting delinquencies to increase50%
40%
30%
20%
10%
0%
© 2014 Fair Isaac Corporation. All rights reserved. 4
Trending NowThis is the fourth consecutive quarter in which expectations for delinquencies on credit cards and auto loans have grown.
Q1 13 Q1 14Q2 13 Q3 13 Q4 13
% of respondents expecting delinquencies on credit cards to increase
% of respondents expecting delinquencies on auto loans to increase
50%
40%
30%
20%
10%
0%
© 2014 Fair Isaac Corporation. All rights reserved. 5
Credit Spigot Is OpeningThe glass-is-half-full crowd interprets this trend as a healthy sign after lenders spent much of the time from 2008-2013 constricting credit availability and avoiding risk. These survey results mean more people are gaining access to credit. That, in turn, can lead to more spending, more jobs, more growth.
© 2014 Fair Isaac Corporation. All rights reserved. 6
The Sky Is About to Fall, Maybe!The folks in the glass-is-half-empty camp will be quick to say we need to keep an eye on risk. If actual delinquencies reach an uncomfortable level, then lenders may need to pull back. We saw that movie a few years ago, and it was a horror flick.
© 2014 Fair Isaac Corporation. All rights reserved. 7
Time to Take a Deep BreathOf course, there is some validity to both views. Banks always need to keep an eye on credit risk. But with card delinquency levels at record lows and US credit quality approaching pre-recession levels, we are probably not in any imminent danger.
Oct2008
Oct2009
Oct2010
Oct2011
Oct2012
Oct2013
% of US consumers with FICO® Scores of 650–850
66.5%
66.0%
65.5%
65.0%
64.5%
64.0%
© 2014 Fair Isaac Corporation. All rights reserved. 8
Shop ‘Til They Drop Interestingly, the survey found that bankers expect consumerre-leveraging to continue and perhaps accelerate. In the survey,65% of bankers expected average balances on credit cards to increase over the next six months—the highest percentage in the survey’sfour-year history.
Is that good news or bad news?
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q114
Q213
Q313
Q413
Percentage of respondents expecting balances to increase
Percentage of respondents expecting balances to decrease
70%
60%
50%
40%
30%
20%
10%
0%
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FICO is a trademark or registered trademark of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2014 Fair Isaac Corporation. All rights reserved.
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