In FICO's quarterly survey of bank risk professionals, bankers expressed optimism that lending for small businesses would accelerate over the next six months. By more than a two-to-one margin, respondents said that both the approval rate for small business loans and the total amount of credit extended to small businesses would increase rather than decrease, and more than half of all respondents predicted the overall supply of small business credit would meet demand.
The survey, conducted for FICO by the Professional Risk Managers' International Association (PRMIA), found continued concern among bank risk professionals about the student debt crisis, and respondents said the supply of new home loans will barely keep pace with demand amidst signs that the housing marketing is beginning to rebound.
Consumer credit: Returning to normalcy After several years of uncertainty in the consumer credit market, this was the second consecutive quarter in which the FICO survey found that bankers expected delinquency rates on every type of consumer loan except student loans to remain flat or decrease. The percentages of survey respondents who expected delinquency rates to stay at their current levels or go down during the next six months were as follows:
Credit cards, 67 percent
Car loans, 76 percent
Residential mortgages, 76 percent
Home equity lines of credit, 74 percent
Small business loans, 73 percent
However, a majority of respondents (61 percent) expected delinquencies on student loans to increase. This is the fourth consecutive quarter that respondents have predicted a worsening of student loan delinquencies.
"The concerns about student loans align with research we recently conducted that found, among all Americans with student loan debt, the size of that debt increased by 54 percent between 2005 and 2012," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "During a time when consumers have been deleveraging, this is startling. It's hard to see how this trend is sustainable. I suspect rules changes will be needed for the repayment of student loans to help former students get on with their lives without becoming prisoners of their debt."
Credit supply expected to expand In another hopeful sign, for the second straight quarter, the majority of lenders expected the supply of credit to satisfy demand for all types of consumer loans. The percentages of respondents who expected the supply of consumer credit to meet or exceed demand during the next six months were as follows:
Car loans, 76 percent
Credit cards, 72 percent
Mortgage refinancing, 59 percent
Student loans, 58 percent
Small business loans 53 percent
Expectations for new mortgage financing were nearly evenly split, with 51 percent of respondents expecting an adequate credit supply and 49 percent expecting supply to fall short of demand.
"It looks like the consumer credit markets are now performing pretty well," said Jennings. "The economy may not be going gangbusters, but credit activity seems to be picking up and lenders appear to have a handle on risk. However, a couple of persistent issues are causing problems for many households and creating a headwind for the broader economy --the tight market for new mortgage lending and the rise in student loan debt, which is weighing down many young adults."
A detailed report of FICO's quarterly survey is available at http://www.prmia.org/PRMIA-News/Fico-3rdQuarterSept2012.pdf. The survey included responses from 215 risk managers at banks throughout the U.S. in September 2012. FICO and PRMIA extend a special thanks to Columbia Business School's Center for Decision Sciences for its assistance in analyzing the survey results.
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