Consumer Loan Problems Spread in the First Quarter

The recession cut a broad swath in consumer loan portfolios during the first quarter, pushing up delinquencies on virtually all types of debt.

Among seven types of closed-end credits made by commercial banks, 2.67% were at least 30 days past due as of March 31, up from 2.57% three months earlier, the American Bankers Association said Friday. Only once in the past seven years has the level been higher, in the third quarter of 1989.

Last year the recession started driving up delinquencies on bank card loans - which tend to reflect the economic pressures on consumers most quickly - and mortgages.

Significant Upswing

But in the first quarter, delinquencies rose significantly in other areas, most notably in home-equity lines of credit. Delinquencies climbed to 0.98% of those accounts, from 0.85% at yearend.

The ABA composite figure also includes second mortgage, personal, recreational vehicle, mobile home, and direct and indirect auto loans.

The association attributed the increase, in part, to consumers' need to catch up on debt incurred during the holiday season. This year, the problem was exacerbated by the recession.

In its announcement Friday, the trade group said encouraging economic news suggests that delinquencies will level off in the near future. It cited an increase in consumer borrowings in April - the first reported by the government this year - as one sign that consumer confidence is returning and the recession may soon subside.

Bleak Outlook

Still, the latest delinquency numbers paint a bleak picture that some bankers say they will have to live with for the rest of the year.

Delinquencies on bank card loans, for example, worsened for the fifth straight quarter. As a percentage of balances outstanding, card loans at least 30 days past due totaled 4.55%, up from 4.46% at yearend. The portion of delinquent accounts jumped to 3.34% from 2.86%.

"That increase in delinquencies was driven more by the recession than by seasonal adjustments," said Daryl Hansen, president of Norwest Corp.'s bank card unit in Des Moines. "And even if delinquencies are going down and the recession is moderating, you won't see reduced chargeoffs until later in the year, because banks will still be trying to work through their delinquencies from six months ago."

Impact on Card Portfolios

Banks typically will not charge off bad bank-card loans until they are 180 days past due. Other consumer debts are usually written off after 90 days, causing losses to be taken more quickly.

"You'll see higher [bank card] loan losses throughout the second and third quarters," Mr. Hansen said.

The ABA figures also suggest that large bank-card issuers are suffering the most. For the second consecutive quarter, South Dakota had the highest delinquency rate, with 4.86% of its card balances past due. That state is home to a large Citicorp unit that accounts for about one-third of its card portfolio. [Graphs Omitted]

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