FICO’s quarterly survey of bank risk professionals found a reversal in the sentiment of U.S. lenders, as expectations for loan repayments and credit availability were more upbeat in the first quarter of 2012 than they had been during the previous quarter. The survey, conducted for FICO by the Professional Risk Managers’ International Association, found fewer lenders expecting a rise in delinquencies on home loans, car loans and small business loans than at any time since FICO launched its survey in early 2010.
In the latest survey, the number of respondents expecting mortgage delinquencies to rise during the next six months was 12 percentage points lower than last quarter — dropping from 47 to 35 percent. The survey found 28 percent of respondents expected delinquencies on small business loans to increase, which is 11 percentage points lower than last quarter. And 20 percent of respondents expected delinquencies on car loans to increase, 13 percentage points lower than last quarter.
With regard to credit cards, 32 percent of respondents expected delinquencies to increase. That is an improvement of seven percentage points over last quarter, and it is the lowest figure since the second quarter of 2011.
“As unemployment falls, even modestly, and four years of deleveraging begin to pay dividends, bankers are allowing themselves to feel some optimism,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Of course, we’re not out of the woods. Foreclosures continue to put pressure on home prices, and jobs are coming back slowly. But we seem to be headed in the right direction. If we can avoid major bumps in the road, such as a spillover effect from the Eurozone crisis, we should continue to see delinquencies drop.”
One area that remains a cause for concern is student lending, with 51 percent of respondents expecting delinquencies to rise. That is 16 percentage points lower than last quarter, but it is still the second-highest level recorded since FICO initiated its survey.
When asked about the availability of credit for specific loan types over the next six months, the majority of respondents expected supply to meet or exceed demand for all loan types except mortgages. For car loans, 77 percent of respondents expected credit supply to satisfy demand. Regarding credit cards, 71 percent of respondents expected the supply to satisfy consumer demand. The optimism wasn’t as high for small business and student loans — 52 percent of respondents expected credit supply to satisfy demand for small business loans, and 58 percent of those polled expected supply to meet or exceed demand for student loans.
“These results are consistent with the general sentiment that delinquencies will be less of a problem over the next six months,” said Jennings. “As lending risk — both perceived and real — declines, the natural reaction by lenders is to loosen the purse strings and extend more credit. This should be welcome news to consumers and businesses alike, because increased access to credit is a key driver of economic growth.”
However, the credit gap persists in housing. With lenders unsure about the real estate sector, 56 percent of respondents believed credit supply would not meet demand for residential mortgages.