Banks Expecting to Issue More Credit in First Half of 2013

In FICO’s latest quarterly survey of U.S. bank risk professionals, a large majority of bankers said consumers will be applying for more new credit and trying to bump up the limits on existing credit accounts over the next six months. Bankers are also expecting balances on credit cards to increase during the first half of 2013. These expectations are in stark contrast to the significant household deleveraging that has taken place over the past five years.

The survey, conducted for FICO by the Professional Risk Managers’ International Association (PRMIA), also found that bankers expect the supply of consumer credit to satisfy the growing demand. A majority of respondents believe the supply of financing for auto loans, credit cards, new mortgages, small business loans, student loans and mortgage refinancing will meet or exceed consumer demand over the next six months.

Are Americans ready to releverage?

The FICO survey found that 61 percent of bankers expect an increase in the number of requests for credit line increases over the next six months. The same percentage of respondents expect the amount of new credit requested by consumers to increase during that time. Both those results are the highest FICO has seen during the 11 quarters it has been conducting this survey. In addition, 59 percent of bankers polled expect credit card balances to increase, which is the second-highest figure seen throughout the history of the survey.

“These results indicate that 2013 could be the year that Americans begin to embrace credit again, after the considerable deleveraging we’ve seen since 2008,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “With both the job market and real estate sector showing signs of life, American consumers may again be willing to fund their lifestyles by taking on more debt. And it appears that banks are willing to oblige.”

Credit supply expected to keep pace with demand

Along with expectations for increased consumer demand, the majority of survey respondents are expecting an ample supply of credit in the months ahead. The percentage of respondents expecting credit supply to meet or exceed demand was as follows:

• Car loans                           74 percent

• Credit cards                       71 percent

• Student loans                    68 percent

• Mortgage refinancing     61 percent

• Small business loans        53 percent

• New mortgages                  53 percent

Nearly half of respondents believe demand for mortgages will surpass supply, which may be another indication that consumers are ready to releverage.

Bankers still want consumers to be cautious

Despite the survey results pointing towards an end of household deleveraging, the survey found that most bankers would like to see consumers remain cautious with their finances. Over 70 percent of bankers polled believe consumers should either save their money or pay off debts. Specifically, respondents were asked what advice they would give to typical consumers heading into 2013.  Here is the breakdown of their responses:

• These are uncertain times; save your money                                              39 percent

• Pay down as much debt as possible                                                                  33 percent

• Money is cheap; it’s a good time to borrow for big-ticket items           22 percent

• Maximize your available credit, in case you need it                                  12 percent

A detailed report of FICO’s quarterly survey is available at http://www.prmia.org/PRMIA-News/Fico-4thQuarterJan2013F.pdf. The survey included responses from 251 risk managers at banks throughout the U.S. in December 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.