Consumer Credit Grows on Eased Lending Standards

The Federal Reserve Board reported that consumer credit outstanding grew by a seasonally adjusted annual rate of 10.0% over the month of March 2016, 5.2 percentage points faster than its growth rate in February. Over the first quarter of 2016, consumer credit outstanding expanded by 6.4%, 0.2 percentage points ahead of the 6.2% rate of growth in the fourth quarter of 2015. There is now $3.59 trillion in outstanding consumer credit.

Growth in the outstanding amount of consumer credit over the year partly reflected an expansion in the outstanding amount of non-revolving consumer credit. Non-revolving consumer credit includes both student and auto loans. According to the report, non-revolving credit outstanding grew by 8.5% on a seasonally adjusted annual rate over the month of March, 3.3 percentage points faster than its rate of growth in February. Over the quarter, non-revolving credit outstanding expanded by 6.6%, 0.4 percentage points faster than its fourth quarter growth rate. There is now $2.64 trillion in non-revolving consumer credit outstanding.

The increase in consumer credit outstanding also reflected growth in the outstanding amount of revolving credit, which is largely composed of credit card debt. Revolving credit outstanding grew by 14.2% on a seasonally adjusted annual rate over the month of March, 10.5 percentage points faster than its pace in February. Over the quarter, revolving credit outstanding expanded by 5.9%, matching its growth rate in the fourth quarter. There is now $952 billion in revolving credit outstanding.

Despite growth, lower oil prices may be eroding the underlying quality of consumer credit in energy-dependent areas of the country. In the latest iteration of the Senior Loan Officer Opinion Survey (SLOOS), the Federal Reserve Board noted that “over the past year, declines in oil prices may have led to strains in firms involved in oil and natural gas drilling/extraction and in the companies that provide support to those firms.”

Presentation1

To assess the impact of these oil price-related strains, the Federal Reserve Board asked senior bank officers to assess the credit quality of other types of loans borrowed by households and businesses in regions that are dependent on the energy sector over the past year. This question was meant to gauge the “possible spillover effects from declines in energy commodity prices and associated declines in energy sector activities.” As illustrated by Figure 1 above, a net share of senior loan officers noted deterioration over the past year in consumer loan products and in commercial and industrial loans, a proxy for business lending, to firms not in the energy sector but still dependent on the energy sector.

However, deterioration in consumer loans extended to households located in energy-sector-dependent regions of the country does not coincide with overall net tightening of lending standards on consumer loan products. Rather, as illustrated by Figure 2 below, lending standards on consumer loan products eased on net over the first quarter of 2016. In contrast, deterioration over the past year in the credit quality of C&I loans to firms that are energy-sector-dependent corresponds with net tightening over the first quarter of 2016 of lending standards on C&I loans.

Presentation2

Results from the latest SLOOS, shown in Figure 3 below, indicate that credit standards on consumer loan products continue to ease on net, although previous analysis found that net easing reflected the loosening of standards on credit limits, maximum maturity, and borrower costs as opposed to granting loans to households not meeting credit score thresholds. While lending standards on consumer loans continue to ease, tight lending standards on C&I loans persist. Moreover, the extent of tightening, the difference between the share of bank officers reporting that standards are easing relative to the proportion answering that standards are tightening, on C&I loans has grown.Presentation3

 



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