NEW YORK–The nation’s biggest banks have been tightening loan underwriting standards and adding to their allowances for loan losses in preparation for potential problems with credit card loans in the future, according to a new analysis.
While regional lenders and banks with big credit-card businesses continued to profit from borrowers who ran up credit balances at higher interest rates in the fourth quarter, others don’t expect the good times to last, according to the Wall Street Journal. The Journal noted that Capital One has set aside roughly $1 billion to cover potential loan losses in the fourth quarter, a 33% increase from the previous quarter, while American Express, as CUToday.info reported earlier, has also increased its reserves by more than 25%, setting aside nearly half a billion dollars.
Chipping Away Slowly
The Journal reported there are signs that some households are coming under pressure. “Borrowers have put more purchases on credit cards, but they chipped away at balances at a slower rate,” the Journal reported. “Delinquency rates on credit cards and consumer loans in the fourth quarter approached or hit levels they were at before the pandemic, when stimulus and lower spending on services allowed consumers to bulk up their savings and pay down debt.
Delinquency rates have surpassed prepandemic levels in some corners of the consumer-lending business.”
As CUToday.info reported here, TransUnion has released a new analysis showing that in Q4 2022 consumers increasingly looked to credit as a means to help stave off financial pressures.
Additional Indicators
Other indicators of those pressures, according to the Journal:
- Ally Financial said the percentage of car loans that were more than 60 days past due rose to 0.89% in the fourth quarter from 0.48% a year earlier.
- Discover Financial Services reported that more than 2% of its private student loans were 30 or more days delinquent, a half-percentage-point increase from a year earlier. Both of those rates were higher than in 2019.
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