Banks nationwide are preparing for an uptick in delinquency rates, especially on consumer loans. More financial institutions are setting money aside to cover losses, banks are reporting with their second quarter earnings results.
“We’ve had the best of times,” John Shrewsberry, Wells Fargo’s chief financial officer, said on the bank’s earnings call last week. “It probably gets a little bit more average.”
Banks are expected more consumers to start missing payments on their mortgages, credit cards, and auto loans, and competition for loans is also heating up, leading more banks to loosen their underwriting criteria to approve applications so they can lend more money.
ADDING HUNDREDS OF MILLIONS TO COVER FUTURE LOSSES
Wells Fargo, for example, has added $150 million to its loan loss reserves. That follows a $200 million deposit to cover losses that the bank made in the first quarter. Capital One has stashed away an additional $290 million to cover losses in its domestic credit card business, the company announced on Friday.
J.P. Morgan Chase added $250 million to its credit card loss reserves, the first time in nearly six years it has taken that step.
Banks are not expecting a sharp uptick in delinquency rates and default rates, but the additional provisions for losses does send up a red flag that problems could be on the horizon.
Defaults on general-purpose credit cards rose to 3.11% in June from 2.88% a year earlier, according to data released Tuesday by S&P/Experian Consumer Credit Default Indices. Defaults increased each of the first five months of the year after mostly falling since early 2010, according to the data.
Auto loans, a fast-growing category of credit, also have taken a shakier turn. Some 0.91% of auto-loan dollars were in default as of June, down from May but up from 0.85% a year earlier, according to S&P/Experian.
More broadly, 13.3% of U.S. households are expected to miss a minimum required payment on at least one of their debts during the third quarter, the highest since the end of 2014, according to a June survey by the Federal Reserve Bank of New York. The figure has been rising since hitting a 2016 low of 11.5% in March.