Feb. consumer borrowing slowed, Fed figures show Banks' tougher loan standards evident

April 08, 1997|By BLOOMBERG NEWS

WASHINGTON -- U.S. consumers borrowed at a slower pace in February as banks toughened their standards for new loans, Federal Reserve figures showed yesterday.

Borrowing increased $6.7 billion for the month -- right in line with analysts' expectations -- to $1.212 trillion after rising a revised $10.2 billion in January. Previously, the Fed said January borrowing increased $8.4 billion.

Though credit growth hit double digits in 1995 and early 1996, banks are tightening loan standards and shoring up against losses, after personal bankruptcies exceeded a record 1 million last year.

Many lenders are acting to "preserve healthy balance sheets," said William Sullivan, an economist at Dean Witter Reynolds in New York. However, there's no danger of a "credit crunch" or a danger of bank failures as seen in the early 1990s, Sullivan said.

In one of its periodic surveys of senior bank lending officers, the Fed said Feb. 10 that "a large number of banks said they had raised standards on credit card loans and many said they had done so for other consumer loans."

The pace of consumer credit was rising at a 6.7 percent annual rate during February. That's down from the 10.3 percent pace of increased borrowing reported in January. The last time credit growth was faster was last July, when it hit 14.6 percent.

By category in February, revolving loans, which include credit cards, rose $5.1 billion in February after rising $8.4 billion in January; auto loans were unchanged in February after rising by $1 billion in January; and other types of personal loans rose by $1.6 billion after rising $800 million in January.

Economists monitor the Fed's consumer credit statistics in assessing the health of household finances and gauging consumer spending, which accounts for two-thirds of overall economic activity in the nation.

Highlighting problems stemming from the rise in bankruptcies, First Chicago NBD Corp. said March 18 its credit card unit will contribute less to earnings this year than last year because of bad loans, adding to concern about the profitability of credit card companies.

A day earlier, Advanta Corp. said it faced a first-quarter loss of $20 million, or 44 cents a share, because of rising losses on its loans to consumers. Advanta was long viewed as one of the best at avoiding losing money on credit card loans, even as individual bankruptcies rose. Banks deserve part of the blame, analysts said, because of their stepped-up promotions to issue credit cards, even to people with flimsy credit records.

Pub Date: 4/08/97

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