MINNEAPOLIS — July 12, 2011 — Key findings in FICO’s Quarterly Survey of Bank Risk Professionals offered mixed signals about the outlook for the U.S. economy, with bankers remaining optimistic about the financial health of consumers but indicating that the “credit gap” for small businesses will grow, and expressing concern about residential mortgage foreclosures. The survey was conducted for FICO (NYSE:FICO) by the Professional Risk Managers’ International Association (PRMIA). The survey results were analyzed by the Columbia Business School.
Consumer delinquencies expected to continue downward
In a sign that bankers are cautiously optimistic about the strength of U.S. consumers, 38 percent of survey respondents expected credit card delinquencies to remain flat, while 31 percent expected them to fall, and only 30 percent expected them to rise over the next six months. For car loans, 47 percent expected delinquencies to remain flat, 32 expected them to fall, and 21 percent expected them to rise over the next six months.
“Bankers tend to be a conservative group, so the fact that their positive outlook from Q1 carried over to Q2 is a good sign,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Although some consumers continue to struggle with debt, credit usage is under control at an aggregate level. Credit card delinquencies and charge-offs are at pre-recession levels.”
Troubling signs for small businesses and homeowners
Despite the somewhat positive outlook for consumer health, the survey results weren’t all positive. While 28 percent of respondents expected delinquencies on small business loans to decline over the next six months, 33 percent expected the number to rise. That is a reversal of last quarter’s survey results when a plurality of bankers expected delinquencies to drop. Moreover, 74 percent of respondents expected credit demand to increase among small businesses. Only 46 percent expected credit supply to increase, meaning bankers expected credit to remain tight for small business owners.
FICO just conducted a similar survey of credit risk managers in Europe. While 41 percent of respondents there believed small business delinquencies would rise, the credit gap for small business was smaller than in the US survey — 60 percent of respondents said demand would increase, and 43 percent said credit supply would increase. The smaller gap may be due to concerted efforts by European regulators and lenders to increase commercial lending.
Another area of pessimism among U.S. bankers continues to be housing. While 18 percent of respondents expected mortgage delinquencies to decline over the next six months, 46 percent expected the number to rise. Similarly, 22 percent of bankers surveyed expected delinquencies on home equity lines to decline while 46 percent expected delinquencies to rise. Similar results were reported in the European survey.
“This isn’t surprising given the fact that average home equity in the U.S. has dropped from 61 percent in 2001 to 38 percent today,” said Jennings. “With millions of homeowners under water on their mortgages, it is very hard to see the light at the end of the tunnel. It is likely to take years to work through all the troubled mortgages.”
Credit usage expected to rise
Americans still appear to have an appetite for credit -- 47 percent of survey respondents expected credit card balances to increase over the next six months, while 19 percent expected balances to decrease. The balance increases are likely to be driven by higher spending among some consumers and smaller monthly payments from others.
A detailed report of FICO’s quarterly survey results is available at http://www.prmia.org/PRMIA-News/USConsumerCreditRisk2011qtr2.pdf. The survey included responses from 272 risk managers at banks throughout the U.S. in May and June 2011. FICO and PRMIA extend a special thanks to the 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 60 chapters around the world and over 70,000 members in nearly 200 countries. 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) delivers superior predictive analytics solutions that drive smarter decisions. The company’s groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO’s innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world’s top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health through www.myFICO.com.
FICO: Make every decision count™.
For FICO news and media resources, visit www.fico.com/news.
Europe, Middle East & Africa
+44 (0) 209-940-8719
+1 786 482 7231
+55 11 97673-6583
Take the next step
Connect with FICO for answers to all your product and solution questions. We look forward to hearing from you.