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, 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.