Delinquencies on consumer loans rising

By APARAJITA SAHA-BUBNA
BOSTON -- Rising unemployment is increasingly pushing strapped U.S. borrowers over the edge, with delinquencies on consumer loans rising to 3.23% in the first quarter, up from 3.22% in the earlier quarter.

During the same period, unpaid balances on these consumer loans also jumped to 3.35% from 3.16%, according to data from the American Bankers Association, an industry trade group.
Higher delinquencies, fueled by rising unemployment and the economic slump, force companies to squirrel away capital to reserve for potential losses; ultimately, companies must write off loans if customers can't pay up. That could mean more trouble for firms such as Citigroup Inc., GMAC Inc., Bank of America Corp., American Express Co., Capital One Financial Corp., Discover Financial Services and J.P. Morgan Chase & Co.

"The number one driver of delinquencies is job loss," said James Chessen, chief economist at the American Bankers Association, in a report published Tuesday. "Delinquencies won't improve until companies start hiring again and we see a significant economic turnaround."

Payrolls contracted by 467,000 jobs last month, a worse-than-expected decline, and the unemployment rate climbed to 9.5%, its highest level in more than 25 years.

In the first quarter, delinquencies on credit cards rose 0.23 percentage point to 4.75% compared to 4.52% in the previous quarter, according to the report. Moreover, the unpaid balances on those delinquent accounts jumped up 1.08 percentage points to a record 6.60%.

The report defines consumer delinquencies as borrowers who are at least 30 days behind on payments on debt ranging from credit cards and auto loans to mortgages.

Delinquencies for home-equity loans also touched record highs, rising to 3.52% in the first quarter.

Bilibala's comments:
To me, 3-4% isn't too high, given the interest spread is higher now. Trend analysis on 2q09's result will tell whether that's getting worse or not.