Notwithstanding concerns about high household debt levels, bank risk officers see no signs of reduced borrowing, according to a survey from analytics firm FICO.
The firm released the results of its latest survey of bank risk managers in the U.S. and Canada, which was carried out in December, finding no reduction in demand for credit among Canadians.
“The Bank of Canada has recently expressed continued concern over high consumer debt levels among Canadians,” says Kevin Deveau, managing director, FICO Canada. “The results of our survey indicate that debt levels show no sign of decreasing, with 42% of the Canadian respondents [expecting] the aggregate amount of credit requested by consumers to increase in the next six months. This represents a 10% increase from the same quarter last year.”
The firm also reports that the survey found that bankers believe that rising consumer loan delinquencies and the ongoing wealth gap “could weigh on the economy in 2015”.
It says that 42% of respondents expect loan delinquencies to rise in the next six months, versus 11% who expect delinquencies to decline. While most bankers expect residential mortgage delinquencies and home equity line delinquencies to stay the same or decrease over the next six months; 39.4% believe that credit card delinquencies will increase, and 38.8% say they will stay the same.
Additionally, nearly 74% of those surveyed agreed that “the wealth gap poses a risk to the financial system in North America.” It reports that 83% of bankers said that the wealth gap has a negative impact on consumer credit quality.
“It is clear bankers are concerned about the wealth gap,” said Dr. Andrew Jennings, FICO’s chief analytics officer. “It is a macroeconomic issue that can have a profound effect on the quality, accessibility and risk associated with consumer credit. Concern among bankers about the risk posed by the wealth gap increased by 12 percentage points over our last survey.”
However, it also found that bankers found it hard to pinpoint just how the wealth gap affects credit quality. It notes that bankers say unemployment rates, consumer debt levels, and interest rates are cited as more significant credit quality factors than the wealth gap.
Notwithstanding the expected rise in consumer delinquencies, the survey also found that 57% believe that credit card debt will rise in the first half of 2015. Bankers are also expecting consumer demand for credit to remain strong; it says that 58% expect the amount of new credit requested by consumers to increase, while just 6% see a decrease.
The survey also reports that half of those surveyed (49.3%) believe that interest rates will stay the same in the next six months, and 47.1% believe they will increase.
The Professional Risk Managers’ International Association (PRMIA) conducted the survey on behalf of FICO.