Loan Approval Rate Expected to Drop as Applications Rise

Approval rates for bank loans will likely fall as the number of applications increase over the next six months, according to a survey of banking professionals released today by Fair Isaac (FICO) and Northwestern University's Kellogg School of Management. A majority of respondents said they expect lending standards to remain tight, making it even more difficult to accommodate all of the added people seeking loans.

Just one in seven banking professionals said they expected lending criteria to loosen up, while almost three-quarters said loan applications would either rise or stay the same over the next six months, Fair Isaac said. As a result, only about 25% of the 235 banking professionals surveyed said they expected loan-approval rate would rise.

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"Government data released in August indicates personal bankruptcies are at their highest levels in five years, and other recent data confirms the ongoing challenges in the employment and housing sectors," said Dr. Andrew Jennings, chief research officer at FICO, in a statement. "This type of economic environment makes it difficult for lenders to open up the flow of credit without taking on significant risk."

Much of the banks' conservatism may be attributed to expectations of rising loan-delinquency rates. About 85% of those surveyed said home-mortgage delinquencies were on the upswing, while about half of those polled expected credit-card, student-loan and small-business delinquencies to increase, FICO said.