Consumer Loan Paradox: U.S. Consumer Finances Still Healthy, but Delinquencies Rising; A Closer Look Under the Hood

This commentary examines the underlying causes of rising delinquencies for consumer loans in the U,S, despite the fairly healthy state of U.S. Consumer Finances and the strong labor market.

Key highlights include:
-- The fairly healthy state of consumer finances along with the tighter credit underwriting of the past several quarters should help support U.S. banks and NBFIs to withstand further deterioration in the credit performance in their consumer loan portfolios.

-- Over the past year, the delinquencies for residential mortgages have been muted but all the other major non-mortgage consumer loan types, including credit cards and auto finance loans, have seen delinquencies increase.

-- Relatively healthy consumer balance sheets driven by stable leverage, manageable debt service capacity and real wage growth bode well for the credit performance of consumer lender portfolios and for the consumers' financial well-being, but stress is being felt for subprime borrowers.

“U.S. banks and NBFIs are well positioned to withstand further deterioration in credit performance in certain consumer loan portfolio segments due to the fairly healthy state of U.S. consumer finances, as well as the tighter credit underwriting of the past several quarters both of which are generally supportive of current credit ratings for consumer lending focused financial institutions.” said Yanni Koulouriotis, CFA, Vice President - Global FIG