NEW YORK • For the biggest US banks, not all consumer debt is created equal.
Credit card losses are outpacing auto and home loans at a rate not seen in at least a decade. The question is whether banks’ plastic problem is an outlier or an omen.
For now, there’s no cause for panic. The strong US economy and low unemployment means most consumers are able to stay current on debt payments — new foreclosures and bankruptcies fell to the lowest level in at least 15 years in 2018. Yet, the uptick in card losses is unmistakable.
Credit-reporting company Experian plc said some of the blame goes to banks offering credit to riskier borrowers, and the US Federal Reserve has noted a spike in late payments by the elderly.
“We do see card delinquencies a little higher and a slight uptick in the most recent couple of quarters,” TransUnion VP of research and consulting Matt Komos said in an interview, adding that he doubts the trend is a harbinger of bad news for banks.
“Delinquencies, while moving upward, are probably hitting a more normal level for the amount of credit that’s out there.”
The four largest US banks had almost US$4 billion (RM16.52 billion) in charge-offs from credit cards last quarter, and just US$656 million from all other consumer lending. That’s the biggest gap since at least 2009. Card charge-offs now make up more than 80% of total consumer credit costs, up from 67% three years ago.
While the card losses are noteworthy, they’re not enough to drag down what’s been an otherwise a stellar run of profits at the top lenders. JPMorgan Chase & Co said last month that profit from its consumer division jumped 19% in the first quarter, while at Bank of America Corp (BoA), that figure surged 25%.
Big banks are also stressing that loss levels aren’t outside the range they expected. Some of the deterioration in credit quality comes from growth: Lenders have piled into credit cards in recent years while pulling back on auto and student loans.
BoA and JPMorgan, two of the largest US mortgage providers, posted recoveries of delinquent debt in their residential home-loan portfolios in the first quarter.
While provisions tied to consumer loans made up the majority of major banks’ credit costs in recent years, investors have grown increasingly wary of deteriorating commercial credit.
Some bank executives have warned of the growing influence of non-banks in the leveraged-lending market, for example, while others have cautioned against the risk of “fallen angels”, or bonds rated in the BBB zone that get downgraded to junk.
And as credit costs increase, many of the biggest banks in the US are also experiencing a slowdown in spending on their cards, meaning they’ll reap fewer of the fees they charge merchants whenever a consumer uses their card at checkout. — Bloomberg