- by Alan Ikemura
As we kick off the new year, I thought I’d dedicate a few blog posts to cover what some of the consumer credit trends are pointing to for potential growth opportunities in 2012, specifically on new loan originations for bankcard, automotive and real estate lending.
With the holiday season behind us (and if you’re anything like me, you have the credit card statements to prove it!), I thought I’d start off with bankcards for my first post of the year.
Everyone’s an optimist at the start of a new year and bankcard issuers have a right to feel cautiously optimistic about 2012 based on the trends of last year. In the second quarter of 2011, origination volumes grew to nearly $47B, up 28% from the same quarter a year earlier. Actually, originations have been steadily growing since the middle of 2010 with increasing distribution across all VantageScore risk bands and an impressive 42% increase in A paper volume.
So, is bankcard the new power portfolio for growth in 2012? The broad origination risk distribution may signal the return of balance-carrying consumers (aka: revolvers) from those that pay with credit cards, but pay off the balance every month (aka: transactors). The tighter lending criteria imposed in recent years has improved portfolio performance significantly, but at the expense of interest fee profitability from revolver use. This could change as more credit cards are put in the hands of a broader consumer risk base. And as consumer confidence continues to grow, (it reached 64.5 in December, 10 points higher than November according to the Conference Board) , consumers in all risk categories will no doubt begin to leverage credit cards more heavily for continued discretionary spend, as highlighted in the most recent Experian – Oliver Wyman quarterly webinar.
Of course, portfolio growth with the increased risk exposure requires a watchful eye on the delinquency performance of outstanding balances. We continue to be at or near historic lows for delinquency, but did see a small uptick in early stage delinquencies in the third quarter of 2011. That being said, issuers appear to have a good pulse on the card-carrying consumer and are capitalizing on the improved payment behavior to maximize their risk/reward payoff.
So all-in-all, strong 2011 results and portfolio positioning has set the table for a promising 2012. Add an improving economy to the mix and card issuers could shift from cautious to confident in their optimism for the new year.