Delinquencies on bank credit cards have risen to a new high, the American Bankers Association said Thursday.
The association's report on consumer credit quality for yearend 1996 showed 3.75% of bank card accounts were at least 30 days past due. That surpassed the record of 3.72% set six months earlier.
It is the latest sign of deterioration in the biggest category of consumer installment credit. With the exception of last year's third quarter, when delinquent card accounts dipped to 3.48%, this statistic has been climbing steadily for more than two years, and economists expect it to get worse before turning around.
Even in a record-setting year for overall bank earnings, card-loan problems took a noticeable toll. And Comptroller of the Currency Eugene Ludwig urged bankers Thursday to adjust their risk management processes for an inevitable turn in the economic cycle. (See articles on page 2.)
Another measure of credit card lateness-the percentage of overdue dollars outstanding-also hit an all-time high, 5.45%, in the fourth quarter. The previous peak was 5.03%, in the third quarter.
The ABA's composite index for several types of closed-end loans, which do not include credit card accounts, rose 5 basis points in the latest quarter, to 2.34%. But it is still well below the last cyclical peak, 2.75% in the first quarter of 1992.
As a percentage of dollars, the composite index worsened by 20 basis points in the fourth quarter, to 2.13%.
Of direct auto loans reported by the ABA members, 2.03% were 30 days or more overdue at yearend, up from 1.95% in the third quarter and 1.87% a year earlier. Indirect auto loans, those made through dealer-agents, rose to 2.36% from 2.29% in the third quarter and 2.17% at yearend 1995.
Open-end home equity delinquencies rose to 1.04% from 0.84% in the third quarter, while the reading on closed-end home equity loans jumped 13 basis points, to 1.42%.
"We're not out of the woods yet, said ABA chief economist James Chessen. He said delinquencies could rise for another quarter or two, but predicted "strong improvements" by midyear.
Referring to the recent wobble in credit cards, he said, "You have to expect some up-and-down movement before you hit the downhill slide."
The negative trend has not caught many lenders or economists by surprise. Banks have been raising credit standards for more than a year and increasing reserves for losses.
"We really tightened up on our credit card area starting 18 months ago," said David Kerstein, executive vice president, Old Kent Financial Corp. "We therefore haven't seen an unexpected rise in delinquency."
"There's nothing happening that indicates we're through the storm yet," said Charles Albright, chief credit officer of Household International.
Ralph Spurgin, chief executive officer of Alliance Data Systems, a private-label issuer in Plano, Tex., said some lenders are "getting a double-whammy"-they have high delinquencies at the same time the portfolios they aggressively built a couple of years ago are maturing.
The seasoning of accounts and the concurrent growth of more marginal credits contribute to the delinquency rise, economists say.
"Normally at this late stage of a cycle we would see delinquency rates relatively low," said Gary Schlossberg, senior economist at Wells Fargo & Co. They would "Spike up when we get a recession," he said.
"But we've had an atypical cycle, in the sense we've had very aggressive lending through the early and middle stages. I think that's coming home to roost now."
Mr. Chessen of the ABA said "banks have been reining in consumer credit, and that should begin to be reflected" in the delinquencies.
"I'm a little surprised we have not seen the peak of those delinquencies," he said. "I thought those actions would have occurred by now."
