More lenders are falling into the consumer credit abyss, but commercial lenders may have a while longer to bask in the sun, bank credit officers say.
The recent disasters at Advanta Corp., Jayhawk Acceptance Corp., and Mercury Finance Co. have turned all eyes to the consumer side of lending.
But a panel discussion at last week's Bank and Financial Analysts Association Banking Symposium in New York contrasted the consumer credit anguish to a more blissful state of affairs on the commercial side.
Credit experts participating in the discussion, entitled "Asset Quality: Consumer Abyss, Commercial Nirvana," said nonbank competition for commercial loans forced banks to take more risk, but syndication and slowed loan growth kept them out of trouble-for now.
"Everyone is wondering if the banks have learned their lesson," said David L. Eyles, chief credit policy officer at Fleet Financial Group. "Well, the jury is still out."
Mr. Eyles said that the slowdown in loan growth, from 8% to 10% in the 1970s to its current 2-3% level, has been the "saving grace" of commercial lenders.
"The modus operandi is totally different than it was in the 1980s," Norwest economist Sung Won Sohn agreed in an interview. "A lot of banks got in trouble by lending based on net worth of collateral, but today, we are lending based on cash flows, and this has improved asset quality and reduced problem loans."
But Paul McGloin, chief risk policy officer at CoreStates Financial Corp., warned that when it comes to commercial loans, bankers are struggling to strike a balance between building their assets and practicing disciplined underwriting.
"We are always waiting for the pendulum to swing in the opposite direction," Mr. McGloin said. "Competition is coming in that has no reason to be in the market," he said, and the new competitors "are providing easy access to loans."
That has everyone "reaching" for additional opportunities, he said.
But fourth-quarter figures show that credit card loans are still far more problematic than any commercial lending category.
About 4.37% of credit card loans were charged off in the fourth quarter of 1996, while only 0.26% of commercial and industrial loans went sour in that time, according to the FDIC.
In the same quarter, 61.1% of all loan chargeoffs were from credit card loans, an increase of 2.7 billion over the year before, the FDIC reports.
"It's all still 'pie in the sky' for now," for commercial lenders, said Mr. Eyles.
Speakers said bankers are not leaping into bad loans the way they did in the late 1980s.
Bank assets are growing slower these days; the total increased by only 6.2% in 1996. Assets grew 7.5% in 1995 and 8.2% in 1994