April 23, 2014

Growing retail sales could support loan origination by bolstering demand for credit

Retail sales surged in March, and the sharp gain could potentially drive up loan origination by supporting demand for credit.

In addition, separate figures showed growing concerns over potential defaults in America. This development could potentially increase the supply of low-quality debt, which could in turn impact loan sales.

Rising retail sales
U.S. Census Bureau figures revealed that in March, retail sales spiked 3.7 percent from the same time in 2013. In addition, the measure increased 1.1 percent from February.

This 1.1 percent increase was the largest monthly gain since September 2012, according to Bloomberg. In addition, these transactions moved higher during the previous month, after being revised upward.

"It really is a story of pent-up demand," Russell Price, who works for Ameriprise Financial Inc. as a senior economist and has repeatedly made accurate forecasts about sales in the last two years, told the news source. "As employment levels continue to improve at a modest pace, so too should consumer spending."

The rising retail sales figures showed that economic conditions are improving, according to Reuters. Such developments could help growth accelerate, after the expansion slowed down during the harsh winter weather. Some believe that this year will see the most robust improvement since the recession ended in 2009.

"This is not a fragile economy. The linchpin of economic growth, the consumer is back and with the consumer's help, growth will be even faster in 2014," Chris Rupkey, who works for Bank of Tokyo-Mitsubishi UFJ as chief financial economist, told the news source.

If conditions keep getting better, consumers could easily become more confident and therefore seek out more credit. If they grow less cautious, these individuals might be at greater risk of taking on debts they have a hard time paying back.

Bankers predict rising delinquency
Many bank risk professionals expressed their concerns about rising delinquency in a poll conducted by the Professional Risk Managers' International Association and sponsored by FICO.

Of those who took part in the survey, 28 percent predicted that credit card delinquencies would increase, and 34 percent expected that auto loans would suffer the same challenges.

Dr. Andrew Jennings, chief analytics officer at FICO, emphasized that financial institutions should be sure to watch these developments carefully.

"While the delinquency predictions in our survey aren't alarming, lenders will be keeping a close eye on these trends," he said in a statement.

Banks that are interested in loan sales might consider speaking with Garnet Capital Advisors, which has significant experience in this space.