Risk is again emerging as a concern in the consumer credit sector as the economic recovery moves into its fifth year, according to FICO's latest quarterly survey of U.S. and Canadian bank risk professionals.
The survey revealed that 44% of respondents believe delinquencies on credit cards will increase in the next six months, while 35% said delinquencies on car loans will rise. Forty-three percent expect the total number of delinquencies on all consumer loans will increase. Expectations for delinquencies for all three categories are at their highest levels since Q4 2011.
It marks the fourth consecutive quarter where respondents' pessimism for credit card and auto loan delinquencies increased. However the survey found re-leveraging is likely to continue and perhaps accelerate. The Professional Risk Managers' International Association (PRMIA) conducted the survey for FICO.
"We've seen concerns about delinquencies creeping up for a few quarters," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "This can be interpreted as a healthy sign after lenders spent much of the past five years constricting credit availability and being risk-averse. These numbers mean more people are gaining access to credit, but we need to keep a close eye on the risk levels of these new loans. If delinquencies reach an uncomfortable level, we may see lenders pull back again."
In the survey, 65% of bankers expected average balances on credit cards to increase over the next six months. That is the highest percentage of respondents expecting balances to increase in the survey's four-year history. In addition, 61% of those polled expected the amount of new credit requested by consumers to increase, which is the second-highest figure ever recorded for that question.
Survey respondents indicated lending for small businesses would remain on its current trajectory and possibly improve. Ninety-four percent of those polled expected the amount of credit requested by small businesses to remain steady or increase over the next six months. Eighty-four percent of respondents believed the amount of credit extended to small businesses would remain steady or increase. Seventy-four percent of respondents expected the supply of credit for small business loans to satisfy demand.