The American Bankers Association's index of consumer loan delinquencies has fallen for the ninth consecutive quarter, underscoring the health of banks' portfolios but raising concerns that the cycle is about to turn.
The composite delinquency rate, which accounts for eight types of closed-end loans, fell in the second quarter to 1.71% of accounts. It has not been lower in the 20 years that the ABA has been collecting and tracking the data from members.
Delinquencies stood at the previous record 1.74% in the fast quarter, 1.77% at yearend, and 2.06% at midyear 1993.
The long run of good news almost adds up to "a warning that 'uh-oh - this isn't going to stay this way,'" said James Annable, First Chicago Corp.'s chief economist. He advises consumer lenders to take care.
Even as closed-end loan quality continued to improve, the larger category of credit cards was going in the other direction, albeit at a slow, pace.
At the end of the second quarter, 2.56% of bank card accounts were delinquent, defined as at least 30 days past due. That was up from 2.54% in the first quarter and 2.49% at Dec. 31, but below the 2.63% at midyear 1993.
"Bank cards, as unsecured loans, are extremely easy for the consumer to use," and therefore may be a leading indicator of problems elsewhere, said ABA chief economist James Chessen.
"lt's the first place to see an increase in delinquencies that would lead to other categories," he said.
There was other, better news in credit cards: Delinquencies as a percentage of dollars owed fell for the second straight quarter, to 3.06%, from 3.51% in the first quarter.
The rate was higher still, at 3.64%, on Dec. 31, and 3.86% in June 1993. In fact, it has fallen in eight of the nine quarters the composite for closed-end loans was declining.
"More people are having difficultly meeting [credit card] obligations," Mr. Chessen said, "but less dollars are at risk."
Overall, the economist said, he was surprised by the general fall in delinquencies. He attributed the decline to consumers' financial health and banks' eliminating bad loans while selecting quality applicants for new loans.
Consumer debt has been expanding- So far this year, Mr. Chessen said, it has grown by $54 billion, at a 12% annual rate.
In July, the Federal Reserve reported installment credit expanded for the 16th consecutive month to $855.5 billion.
"I have to believe that as consumer debt continues to expand, we'll start to see increases in the delinquency rate," Mr. Chessen said.
Most of the July increase in total consumer credit came from auto loans, which grew by $4.14 billion, while revolving credit, including credit card outstandings, rose $3.66 billion.
"It's been a relatively kind environment for consumers to handle more debt and still have a decline in delinquencies," Mr. Annable said. "The real test will come when the next jump in unemployment comes."
The ABA's widely followed composite figure is derived from a survey of ABA members on direct and indirect auto, personal, home equity, home improvement, recreational vehicle, mobile home, and marine loans.
In terms of total dollars owed, 1.37% of consumer outstandings were 30 days or more past due at the end of June, compared with 1.46% at the end of March and 1.59% a year earlier.
Following the general trend, late payments on direct and indirect auto loans fell slightly, to 1.51% and 1.59%, respectively, from 1.53% and 1.64% in the previous quarter.
The lowest rate of delinquency was reported on home equity open-end credit lines, not included in the composite, which dipped to 0.57% from 0.76% three months earlier. Closed-end home equity and second mortgage loans fell 21 basis points, to Delinquencies in other closedend categories, seasonally adjusted, included 2.31% of personal loans, 3.44% mobile homes, 1.15% recreational vehicles, and 1.93% home improvement. "Consumers seem to be minding the shop very well," said Robert W. Johnson, senior research associate for the Credit Research Center at Purdue University. "There's no indication they've gotten into heavy debt," Mr. Johnson added, "but if incomes go down there might be a problem ."
PNC, Quaker State Visa Will Be the First Offered By Motor Oil Company
OIL CITY, Pa. -- PNC Bank will issue the first cobranded Visa credit card available from a motor oil company.
The Quaker State Visa, with no annual fee, will lure applicants with coupons, based on 1% of net purchases, redeemable for free oil changes, motor oil, or other lubricants.
Cardholders can redeem coupons at participating quick-change locations or retailers that carry Quaker State products.
An 8.9% introductory APR will last until March 31, 1995, when the rates will jump to prime plus 7.9%.
The card will initially be offered to the company's 280,000 customers enrolled in its engine-warranty program, as well as Quaker State's share owners and employees.