The American Banker’s Association’s delinquency index indicates improvement in overall delinquency for 4Q17 for credit cards, which shows a five basis point drop, from 2.67% to 2.65%, along with modest improvement on non-card revolving delinquency and a slight bump upward on home equity lines of credit (HELOC).
Direct auto loans rose from 1.04% to 1.12%, and personal loan delinquencies surged from 1.52% to 1.90%. With an optimistic view the ABA notes:
“Delinquencies remained remarkably low for this late in the economic cycle”
“The very modest increase in closed end loan delinquencies reflects a slow movement back toward more normal levels. Jobs remain plentiful and incomes continue to rise, which has helped boost consumer confidence.
Delinquencies in bank cards (credit cards provided by banks) fell 5 basis points to 2.62 percent of all accounts and remain significantly below their 15-year average of 3.62 percent.
Mercator’s view on delinquency is a bit more cautious. The statistics that the ABA cites includes the period between 2008 and 2011, when the US was knee deep into the recession, which distorts the shorter term trend. Where we see risk for the same ending period is shown in the Federal Reserve Bank’s G-19 report for revolving credit, where delinquency hit 2.53% in 3Q17, up 5 bp over prior period and the highest level since 2Q13. We are much more conservative in assessing risk, as these two metrics indicate.
…Better safe than sorry.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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