The American Bankers Association's measures of consumer credit quality seesawed again in the third quarter-this time mostly in a direction that would hearten lenders.
After an ominous rise in the second quarter, the proportion of credit card accounts at least 90 days past due improved to 3.53% at Sept. 30, from 3.69% at June 30. Indirect automobile lending showed a similar improvement, to 2.62%, from 2.74%.
Neither ratio had fallen back to its level of a year earlier; both still look troublesome by historical standards. But industry experts seized on the downtrend as a sign that recent troubles were dissipating as the holiday shopping season loomed.
Reinforcing that impression was a decline in the ABA's composite delinquency rate for eight types of closed-end loan, which had risen for three consecutive quarters. It fell to 2.52% at Sept. 30. The three-month improvement was a modest 3 basis points, but the composite-covering auto, recreational vehicle, home improvement, and other such categories-has never been as volatile as the big credit card and auto categories.
There were still anomalies. For example, while the indirect auto loans banks make through dealers improved markedly, direct auto lending went in the opposite direction: to 2.16% delinquent, from 2.07% in the previous quarter. It had not been that high since 1992.
As a percentage of dollars outstanding, the composite delinquency rate worsened quarter-to-quarter, to 2.03%, from 1.93%, as did the bank card ratio, to 5.31%, from 5.24%.
"The bad news is that (delinquencies) are historically high, especially for this kind of unemployment rate," said James Annable, chief economist at First Chicago NBD Corp. "But the very, very good news is that they haven't continued to go up at the rate that they had."
In credit cards, late accounts hit a record 3.72% in last year's fourth quarter, went down to 3.51% in the first quarter and jumped back to 3.69% in the second.
"We really didn't know how high this thing was going to go, so the indication that there is some top being achieved is really happy news," Mr. Annable said.
The closed-end composite index, despite its improvement to 2.52%, was still well above the 2.29% of the 1996 third quarter.
The closed-end home equity loan measure was unchanged from June 30 to Sept. 30, at 1.32%. Home equity lines of credit, which have the lowest delinquencies of all, improved to 0.90% from 1.04%.
Others within the composite index for Sept. 30 included: recreational vehicle loans, 2.54%; personal loans, 3.36%; and mobile home loans, 5.05%.
ABA chief economist James Chessen said the credit card numbers remained the most worrisome.
"Delinquencies are still at high historical levels," he said. "The danger at this time of year is that there is a fair amount of consumer enthusiasm at the shopping malls, and that easily leads to overspending and a big financial snowdrift."
Credit card headaches aside, banks are "extraordinarily healthy," Mr. Chessen said, citing the Federal Deposit Insurance Corp.'s report last week that commercial banks earned a record $14.8 billion in the third quarter.
"Even with concerns over consumer delinquencies, bank portfolios are the best they've been in two decades, since the FDIC started tracking this information," Mr. Chessen said.
Mr. Annable said current conditions represent a "new paradigm" in which high delinquencies persist in a strong economy.
"The real change here has been the enormous increase in credit capacity available to consumers, and that's what we've been trying to work our way through," Mr. Annable said.
Early and "truly pessimistic" projections of this year's writeoffs were "way too high," he said. The plateauing of losses has meant that credit cards remain "a very profitable business."
"The real test of how to manage these portfolios will come in the next recession," Mr. Annable said.
Michael R. Dean, director of Fitch Investors Service's credit card group, which tracks delinquency and chargeoff trends in securitized portfolios, said, "Tightened underwriting standards and intensified collection efforts" were responsible for the quarterly improvements.
Alison B. Emmerich, who does similar analytical work at Standard & Poor's Corp., said some issuers had raised lending standards but "we're not seeing improved underwriting across the board." She saw no reason to expect "things to be much worse or better."
Coincidentally, the Consumer Federation of America held a press conference in Washington to warn about overextended consumers.
"You have to look at two quarters of data to be confident that there is a trend, not just a blip," said Stephen Brobeck, the group's executive director. He said banks persist in lending irresponsibly and pointed to five lenders with "unusually high" chargeoffs.
For the year ended June 30, he said, Mellon Bank of Wilmington, Del., and Hurley State Bank of Sioux Falls, S.D., part of the Discover-Novus organization, tied for the highest chargeoff rate, at 9% of loans. Wells Fargo National Bank followed, at 8.6%; First Union National Bank, at 8.4%; and Advanta Corp., at 8.2%.
"Banks with a rate above 6% are clearly extending too much credit to too many consumers who cannot afford it," Mr. Brobeck said.
He commended several lenders with low chargeoff rates: MBNA America Bank, Wilmington, 2.1%; People's Bank, Bridgeport, Conn., 2.4%; Travelers Bank, Newark, Del., 2.7%; and the Wilmington-based First USA unit of Banc One Corp., 2.9%.
Mr. Brobeck called on banks voluntarily to limit credit to 20% of household income.
