Defying expectations of a cyclical downturn in consumer credit quality, the American Bankers Association's index of loan delinquencies has improved for the 10th consecutive quarter.

The ABA's composite percentage of closed-end loan accounts with payments at least 30 days overdue fell to 1.66% on Sept. 30 from 1.71% on June 30 and 1.95% at the end of the third quarter of 1993.

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The index has not been lower in the 20 years that the ABA has been compiling it. Individual loan types, including auto and credit cards, also enjoyed declines, but home equity rates rose counter to the trend.

"I keep being surprised by all of this," said James Chessen, chief economist for the ABA. "It's good news for both banks and consumers."

Mr. Chessen said the low delinquency ratio, as calculated from a survey of association members, is the result of strong consumer credit growth, chargeoffs of bad loans, and the booking of new, high-quality credits.

"The big worry is that the interest rate increases by the Fed are going to slow down this market sometime in the second half of 1995," said Mr. Chessen.

Erin Fossett, domestic economist for First Chicago Corp., is projecting "a substantial slowdown in consumer spending in 1995," which could mean the end of the strong credit cycle.

Delinquencies on bank card loans -- open-end accounts that are not included in the ABA's composite ratio, declined to 2.44% from 2.56% at the second quarter and 2.66% a year earlier.

While U.S. credit card portfolios have been growing by double-digit percentages, card loan delinquencies were falling, according to MasterCard and Visa statistics. In dollar terms, the ABA said they stood at 2.90% on Sept. 30, down from the previous quarter's 3.06%, and under 3% for the first time since 1985.

"Banks' portfolios have never been better," said Mr. Chessen. "Until it starts to become obvious that delinquencies are going to increase, we'll continue to see aggressive card issuing behavior."

Although the Federal Reserve has raised interest rates six times since February, consumer expenditures grew at a 3.3% annual rate in the third quarter, the ABA said. Unemployment dropped to 5.6%, the lowest rate since August 1990, and personal incomes increased 1.4% in October.

Revolving credit, including bank and retail store card accounts, increased in October by $4.9 billion, compared with $1.5 billion the month before, the ABA report said.

"Consumers have been able to spend beyond their income in 1994 because of refinancing. They no longer have that capacity, so spending will have to slow down," said Ms. Fossett of First Chicago.

An estimated $40 billion windfall from mortgage refinancings may have worked its way out of the system by now, Mr. Chessen said. He added that the economy couldn't sustain double-digit credit growth for much longer.

Samuel G. Liss, a CS First Boston analyst, disagreed with the doomsayers.

"Those who believe consumer installment debt is reaching scary levels are premature," Mr. Liss said. "Employment conditions are very strong, and personal debt ratios are not out of historical ranges."

Edward Bankole, a Moody's Investors Service analyst who tracks delinquencies in securitized card loan portfolios, said the magnitude of recent improvements is misleading because of the rapid growth in balances. He expects delinquencies to rise slightly next year.

The ABA survey showed late accounts in direct and indirect auto lending fell to 1.31% and 1.57%, respectively, from 1.51% and 1.59% the previous quarter.

Open-end home equity delinquencies rose slightly, to 0.67% from 0.57% last quarter, but had the lowest delinquency rate of any single category. Closed-end home equity loans increased to 1.33% from 1.30%.

Mr. Chessen said the home equity levels are so low that they are not indicative of a downward trend.

"Balance sheets are strong, consumer credit is strong, customers are happy -- this is a very good time for banks," said Mr. Chessen.

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