Losses on consumer auto loans are on the rise, but banks have fared better than other auto lenders - at least so far.
Auto loan-backed securities have weakened significantly, "but the trend in the banking industry is not nearly as alarming," said Eugene O'Keane, one author of a recent Standard & Poor's report.
Higher losses are the result of declining consumer credit quality, liberal underwriting policies, and increasing competition in the auto loan- backed securities sector, analysts said.
Banks' losses in auto loan-backed securities tend to be lower than other lenders have suffered because banks have stricter underwriting policies and are more aggressive in pursuing delinquent borrowers.
At March 31, the average annualized net loss rate on banks' auto loan receivables was 0.63%, compared with a 1.55% loss rate at the automakers' finance companies and a 6.20% rate at independent finance firms, the credit rating agency reported.
But banks' losses could well rise, some analysts warned.
Hungry for higher-yielding assets, banks have loosened their underwriting policies in order to gain more share in the auto loan-backed securities market.
In 1995, banks and finance companies controlled 47% of the market, or $13.2 billion, up from 16% of the market, or $2.7 billion, in 1994, said Standard & Poor's.
"Banks have come into the market with a vengeance," said Mr. O'Keane. "They want the business. But the price is lower quality and higher risk."
Auto loan portfolios "are yielding more revenues but experiencing more losses," he said.
"The finance sector has gotten competitive," said Paul Jablansky, an analyst of asset-backed securities at Salomon Brothers Inc. "You tend to see lenders underwriting credits for accounts that they may have passed up in previous years."
Indeed, the fight for market share has already caused problems. This year, net losses on auto receivables neared or surpassed recessionary levels in the securitized portfolios of several banks.
Net losses on auto loans of Boatmen's Bancshares, St. Louis, stood at 0.33% of receivables in the first quarter. During 1992, when the economy was moving sluggishly out of recession, the Boatmen's loss rate was 0.23%.
NationsBank Corp.'s net losses on auto receivables rose to an annualized rate of 1.22% in the first five months of this year, from 0.86% in the same period of 1992 at the Charlotte, N.C.-based bank company.
And at Keystone Financial Corp., Harrisburg, Pa., net losses reached 0.86% in the first quarter of 1996, compared with 0.84% in 1992.
Bank representatives played down these statistics.
"The loss rate doesn't tell the whole story," said Todd Rubenson of NationsBank. "Other variables contribute to overall return. We are satisfied with the overall return on our portfolio at this time."
"Higher chargeoffs for March and April were expected," said A. James Durica, senior vice president at Keystone. "We were consolidating our collection department. But the gross chargeoff for the past three months was 78%, which is not at recessionary levels," he said.
In any event, analysts were optimistic that banks could continue to control losses better than the rest of the auto finance industry.
Delinquencies in banks' auto loan securities "will never reach the same magnitude as finance companies' because banks in general originate to the stronger obligors," said Mr. O'Keane.