For the first time in a long time, I sense a bit of pessimism creeping into our quarterly North American risk survey results. In the latest survey of U.S. and Canadian bank risk professionals, expectations for delinquencies on credit cards and auto loans, as well as total delinquencies on all consumer loans, reached their highest levels since Q4 2011.
In the survey, 44% of respondents expected delinquencies on credit cards to increase during the next six months, while 35% said delinquencies on car loans would increase. Some 43% expected the total number of delinquencies on all consumer loans to increase.
These numbers certainly don’t signal any sort of imminent catastrophe. However, this is the fourth consecutive quarter in which pessimism has increased with regard to delinquencies on auto loans and credit cards. That’s starting to look like a clear trend.
The glass-is-half-full crowd can interpret this trend as a healthy sign after lenders spent much of the time from 2008-2013 constricting credit availability and avoiding risk. These numbers mean more people are gaining access to credit. But the glass-is-half-empty crowd will be quick to say that we need to keep a close eye on risk levels. If actual delinquencies reach an uncomfortable level, then lenders may need to pull back again.
Of course, both views are true. You always need to keep an eye on credit quality, but with card delinquency levels at record lows and US credit quality approaching pre-reccession levels, it feels like we are not in imminent danger.
Interestingly, our survey found bankers expect consumer re-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 our survey’s four-year history. In addition, 61% expected the amount of new credit requested by consumers to increase, which is the second-highest figure ever recorded for that question.
When it comes to small business lending, our survey indicated that things would remain status quo, and perhaps improve just a bit. Among those polled, 94% expected the amount of credit requested by small businesses to remain steady or increase. Some 84% of respondents believed the amount of credit extended to small businesses would remain steady or increase. And 74% expected the supply of credit for small business loans to satisfy demand.
To view all survey responses, I invite you to download the full report. It will be interesting to see what the next few quarters have in store, particularly for consumer loan delinquencies. Hopefully lenders are reaching a point of healthy equilibrium—expanding access to credit without taking big risks.
