Garnet Capital Advisors Blog

April 14, 2014

Rising US consumer borrowing could bolster loan sales due to higher originations

U.S. consumer borrowing surged more than economists had expected in February, and this development could bolster loan sales if banks seek to unload any excess credit they have extended.

Lenders can potentially capitalize on this opportunity by building their portfolios of interest-bearing loans and increasing the income that they enjoy by holding this debt or by accelerating income by selling loans at a profit..

In February, consumer credit rose by $16.5 billion, according to Federal Reserve data reported by Bloomberg. This figure managed to beat every prediction provided by market experts in a recent poll conducted by the news source.

The 34 economists who took part in the survey gave forecasts of increases between $7 billion and $16.2 billion, according to the media outlet. In addition, they provided a median projection of a $14 billion gain in consumer borrowing.

Non-revolving debt rose $18.9 billion during the month, The Associated Press reported. However, revolving debt, which includes credit cards, dropped $2.4 billion in February. Amid these developments, total borrowing moved up to a new high of $3.13 trillion.

The increases show that consumer sentiment is improving, and that these individuals are confident enough to take on more debt. In addition, since total borrowing recently hit an all-time record, banks may find that they have excess origination capacity.

"Consumer credit is keeping track with the slow but positive growth we've seen in consumer spending throughout the cycle and in household spending in the first quarter," Mike Englund, chief economist for Boulder, Colo.-based Action Economics LLC, told Bloomberg. Englund said due to the robust auto sales that happened in March, "we'll probably see a bounce in the consumer-credit numbers as well."

Banks that are thinking of purchasing loans might consider speaking with Garnet Capital Advisors, which has many years of experience in this particular industry.