In a sign of economic improvement, 52 percent of bankers surveyed expect consumers to seek more credit, but 92 percent expect lending standards to hold steady or get tougher
MINNEAPOLIS--(BUSINESS WIRE)--FICO (NYSE:FICO), the leading provider of analytics and decision management technology, today announced the results of a survey conducted on its behalf by the Professional Risk Managers’ International Association (PRMIA) asking bank risk professionals to predict trends in consumer credit.“Financial institutions have come to realize how vulnerable their businesses are to macro-economic forces and I expect to see much more emphasis placed on proactive, systematic risk management and loss prevention than we’ve seen in the past.”
Demand for Credit Up, But Lenders Still Cautious
The survey, conducted in March 2010, found that while bankers generally expected consumers to pursue more new credit as well as spend more against their existing credit lines, most lenders are likely to keep a close eye on risk management. Of the 127 bank risk professionals surveyed, 92 percent said they don’t expect to see an easing of lending standards in this quarter, 95 percent expected interest rates for consumer credit to stay at current levels or move higher, and 83 percent expected the average credit limit for new credit cards to be lower than in the past.
The survey, conducted in March 2010, found that while bankers generally expected consumers to pursue more new credit as well as spend more against their existing credit lines, most lenders are likely to keep a close eye on risk management. Of the 127 bank risk professionals surveyed, 92 percent said they don’t expect to see an easing of lending standards in this quarter, 95 percent expected interest rates for consumer credit to stay at current levels or move higher, and 83 percent expected the average credit limit for new credit cards to be lower than in the past.
“Bankers have a growing sense of optimism about the economy, but it’s clear that risk management and responsible lending will be top-of-mind as they pursue new customers,” said Dr. Andrew Jennings, chief research officer at FICO and head of FICO Labs -- the company’s research unit that worked with PRMIA on this survey. “Banks will stay focused on loss prevention. Our survey found most bankers are still concerned about delinquencies. Throw in the CARD Act, which makes it harder for lenders to rein in risky cardholders, and it becomes highly unlikely we’ll see lenders throw caution to the wind.”
Delinquencies Expected to Increase
When asked about expected delinquency rates for several types of consumer credit, the majority of bankers said they expected delinquencies to increase. This includes home mortgages (60 percent of respondents expected a rise in delinquencies), credit cards (59 percent), and home equity lines of credit (56 percent). Even when asked about small business loans, 63 percent of lenders expected to see an increase in delinquencies.
When asked about expected delinquency rates for several types of consumer credit, the majority of bankers said they expected delinquencies to increase. This includes home mortgages (60 percent of respondents expected a rise in delinquencies), credit cards (59 percent), and home equity lines of credit (56 percent). Even when asked about small business loans, 63 percent of lenders expected to see an increase in delinquencies.
Risk Management Becoming a Higher Priority in Banks
In a particularly telling result, 66 percent of bankers expected their institutions to increase the priority placed on risk management. Meanwhile, 34 percent expected the priority given to risk management to remain at its current level, and not a single respondent expected risk management to become a lower priority.
In a particularly telling result, 66 percent of bankers expected their institutions to increase the priority placed on risk management. Meanwhile, 34 percent expected the priority given to risk management to remain at its current level, and not a single respondent expected risk management to become a lower priority.
“Risk management hasn’t always been treated strategically, but that’s starting to change in a significant way,” said Dr. Russell Walker of the Zell Center for Risk Research at Northwestern University’s Kellogg School of Management. Walker is a PRMIA member and analyzed the survey results. “Financial institutions have come to realize how vulnerable their businesses are to macro-economic forces and I expect to see much more emphasis placed on proactive, systematic risk management and loss prevention than we’ve seen in the past.”
Risk Managers Almost Universally Pessimistic about Impact of CARD Act
While the recently implemented CARD Act was designed to protect credit cardholders from objectionable lending practices, the survey found it is likely to contribute to the gap between credit supply and credit demand. Of those survey respondents who work in the credit card industry, over 85 percent expected the CARD Act to result in higher interest rates for consumers and lower credit limits for new accounts. These respondents also expected the law to result in similar or lower acceptance rates for credit applications, indicating that tougher regulations and the ongoing struggle by credit card issuers to regain profitability will keep credit tight.
While the recently implemented CARD Act was designed to protect credit cardholders from objectionable lending practices, the survey found it is likely to contribute to the gap between credit supply and credit demand. Of those survey respondents who work in the credit card industry, over 85 percent expected the CARD Act to result in higher interest rates for consumers and lower credit limits for new accounts. These respondents also expected the law to result in similar or lower acceptance rates for credit applications, indicating that tougher regulations and the ongoing struggle by credit card issuers to regain profitability will keep credit tight.
A detailed report of the survey results is available at http://www.prmia.org/PRMIA-News/USConsumerCreditRisk.pdf. FICO and PRMIA extend special appreciation to The Zell Center for Risk Research at The Kellogg School of Management for its assistance in analyzing the survey responses and writing the report. FICO intends to replicate this survey quarterly.
About PRMIA
The Professional Risk Managers’ International Association (PRMIA) is a higher standard for risk professionals, with 60 chapters around the world and more than 67,000 members from 198 countries. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education, including the Professional Risk Manager (PRM) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found atwww.PRMIA.org.
The Professional Risk Managers’ International Association (PRMIA) is a higher standard for risk professionals, with 60 chapters around the world and more than 67,000 members from 198 countries. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education, including the Professional Risk Manager (PRM) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found atwww.PRMIA.org.
About the Zell Center for Risk Research
The Zell Center for Risk Research promotes the study and understanding of the way people perceive risk, the effects of these perceptions, and the management of risk. The center accomplishes these objectives by encouraging academic research in this area, and through the communication of research findings to a wide audience of academics, students and practitioners. The center is housed within the Kellogg School of Management at Northwestern University, a widely-recognized global leader in management education. The school, located just outside of Chicago, is home to a renowned, research-based faculty and MBA students from around the globe. To learn more, visit www.kellogg.northwestern.edu.
The Zell Center for Risk Research promotes the study and understanding of the way people perceive risk, the effects of these perceptions, and the management of risk. The center accomplishes these objectives by encouraging academic research in this area, and through the communication of research findings to a wide audience of academics, students and practitioners. The center is housed within the Kellogg School of Management at Northwestern University, a widely-recognized global leader in management education. The school, located just outside of Chicago, is home to a renowned, research-based faculty and MBA students from around the globe. To learn more, visit www.kellogg.northwestern.edu.
About FICO
FICO (NYSE:FICO) transforms business by making every decision count. FICO’s Decision Management solutions combine trusted advice, world-class analytics and innovative applications to give organizations the power to automate, improve and connect decisions across their business. Clients in 80 countries work with FICO to increase customer loyalty and profitability, cut fraud losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market share. FICO also helps millions of individuals manage their credit health through the www.myFICO.comwebsite. Learn more about FICO at www.fico.com.
FICO (NYSE:FICO) transforms business by making every decision count. FICO’s Decision Management solutions combine trusted advice, world-class analytics and innovative applications to give organizations the power to automate, improve and connect decisions across their business. Clients in 80 countries work with FICO to increase customer loyalty and profitability, cut fraud losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market share. FICO also helps millions of individuals manage their credit health through the www.myFICO.comwebsite. Learn more about FICO at www.fico.com.
FICO Statement Concerning Forward-Looking Information
Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2009. If any of these risks or uncertainties materializes, FICO’s results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2009. If any of these risks or uncertainties materializes, FICO’s results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
FICO is a registered trademark of Fair Isaac Corporation.
Contacts
FICO
Media:
Steve Astle, 415-446-6204
stephenastle@fico.com
or
Investors/Analysts:
Michael Pung, 800-213-5542
investor@fico.com
Media:
Steve Astle, 415-446-6204
stephenastle@fico.com
or
Investors/Analysts:
Michael Pung, 800-213-5542
investor@fico.com
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