The Joy of Lending (at Least for Now)
The credit landscape has improved dramatically since the end of the financial crisis, but that improvement reached a new level in the first quarter, with bank card delinquencies falling to their lowest level in eight years. Yes, you read that right.
From the American Bankers Association today:
Consumer loan delinquencies showed broad-based improvement for the third quarter in a row, a sign of continued modest improvement in the U.S. economy, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin. The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 21 basis points to 2.98 percent of all accounts from 3.19 percent of all accounts in the previous quarter.Bank card delinquencies fell more than half of one percent to 3.88 percent of all accounts which is below the 15-year average (3.93 percent). This is the first time since the second quarter of 2002 that bank card delinquencies have fallen below 4 percent.
The ABA reported that every type of consumer loan — save mobile home loans, marine loans, RV loans and non-card revolving personal loans — enjoyed lower delinquencies in the first quarter.
So what is really going on here? Credit is improving, that seems undeniable. But less credit is outstanding, as well. The financial obligation ratio, that is the ratio of financial obligations (otherwise known as credit) to disposable personal income, fell to 17.36% in 1Q. That is the lowest level of the FOR since the second quarter of 2000! With less credit outstanding, less credit can go bad.
That’s not to say this isn’t good news for lenders. In fact, they bode extremely well for 2Q earnings, reports on which start coming from banks next week. Better credit performance is good for lenders. Full stop. If you’re a lender, be happy.
The numbers:
CLOSED-END LOANS
Decreased Delinquencies:
- Direct auto loan delinquencies fell from 1.94 percent to 1.79 percent.
- Indirect auto loan delinquencies fell from 3.15 percent to 3.03 percent.
- Home equity loan delinquencies fell from 4.32 percent to 4.12 percent.
- Personal loan delinquencies fell from 3.63 percent 3.61 percent.
- Property improvement loan delinquencies fell from 1.63 percent to 1.40 percent.
Increased Delinquencies:
- Marine loan delinquencies rose from 1.63 percent to 1.93 percent.
- Mobile home loan delinquencies rose from 3.41 percent to 3.65 percent.
- RV loan delinquencies rose from 1.44 percent to 1.58 percent.
OPEN-END LOANS
Decreased Delinquencies:
- Home equity lines of credit delinquencies fell from 2.04 percent to 1.81 percent.
- Bank card delinquencies fell from 4.39 percent to 3.88 percent.
Increased Delinquencies:
- Non-card revolving loan delinquencies increased from 1.46 percent to 1.63 percent.
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