If Delinquencies Rise, Is That Good or Bad News?

As I continue digging through the results of our most recent quarterly survey of North American bank risk officers, I keep coming back to one clear and seemingly troubling trend – our survey respondents think consumer loan delinquencies are going to rise.

Is that a good thing or a bad thing? I put together a few charts to help visualize why the debate isn’t so clear-cut.

For four straight quarters, the number of respondents expecting delinquencies to rise on auto loans and credit cards has increased. This is not insignificant. In fact, expectations for delinquencies on these types of loans are at their highest levels in nearly three years, and they are fast approaching their highest levels since we began tracking banker sentiment in Q2 2010.

On its face, this is clearly bad news. When a trend line moves the wrong way for an entire year, it’s difficult to put a positive spin on it.

However, credit quality is continuing to improve. It’s nearly back to pre-recession levels. Consumer loan delinquencies are hovering near historic lows. So maybe the expected rise in delinquencies simply indicates the era of extraordinarily tight lending is coming to a close.
 

Should we worry about a trend that seems so obviously negative? Or should we recognize it as a healthy sign of more robust economic activity? Weigh in with your comments, or dig deeper into the topic with our new ebook: “Consumer Loan Delinquencies Set to Rise: Good News or Bad News?”