In the first quarter, consumer loan delinquencies nationwide fell to their lowest levels since 2007, and were even less frequent in Massachusetts.
According to the Massachusetts Bankers Association, the Bay State has “significantly better numbers than national.”
That’s good news for consumers, and for banks, which may have the opportunity to put money previously reserved for loan losses and charge-offs toward the bottom line.
However, banks may not begin making that transition for some time yet, said Michael Rubin, an attorney with Boston-based law firm Posternak Blankstein & Lund LLP.
“Yes, they’re going to have to reserve less, and yes, we should see a corresponding decrease in charge-offs, but that’s premature,” Rubin told Banker & Tradesman. “Banks are reactive, not proactive, and it’s down the road.”
So instead of getting on the highway and mashing the throttle, banks may first try going five miles per hour above the speed limit and seeing whether they get pulled over.
“They may be reluctant to let go of their reserves,” Rubin, who has sat on several bank boards of directors over the years, said. After spending the last few years in a banking crisis that is obviously not over just yet, and now waiting to feel the full burden of Dodd-Frank and Basel III, bankers aren’t about to start slashing reserves in order to boost profits.
Instead, “safety and soundness,” the type that satisfies bankers’ own minds, as well as the quantifiable type that regulators key on, is all-important.
Remarkable Improvement
Bank card delinquencies fell nine basis points to 3.08 percent of all accounts in the first quarter, the lowest since 2001 and below the 15-year average of 3.93 percent. The ABA report defines a delinquency as a late payment 30 days or more overdue.
“This is another strong quarter of improving delinquencies. Consumers have done a remarkable job getting their finances under control,” James Chessen, the ABA’s chief economist, said in a statement. “Improvement was all the more remarkable when you consider that gas prices rose 66 cents a gallon in the first quarter alone.”
The only category where delinquencies rose was home equity lines of credit.
“It will be many quarters before delinquencies on home equity loans get back to anything close to normal,” Chessen said.
So, delinquency rates are the lowest they’ve been since the first quarter of 2007, “but I don’t see how it’s going to benefit corporate profits in any way, or how it benefits consumers in any way,” Rubin said.
The American Bankers Association’s composite delinquency ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 14 basis points to 2.35 percent of all accounts in the first quarter. In addition to being the ratio’s bets quarter in five years, it also fell below the 15-year average of 2.4 percent.
