According to executives at the largest U.S. banks, consumers are starting to fall behind on their credit card and loan payments as the economy weakens, while they noted that delinquency levels were still relatively low.

Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup Inc. all reported profits that exceeded analyst expectations as the lending behemoths benefited from rising interest rates. However, business leaders predicted that this year’s success would wane as a recession loomed and client delinquencies increased.

“We’ve seen some consumer financial health trends gradually weakening from a year ago,” Wells Fargo Chief Financial Officer Mike Santomassimo said on a conference call Friday to discuss its first quarter results.

The bank’s CEO, Charlie Scharf, noted that although delinquencies and net charge-offs, or debt owing to a bank that is unlikely to be recovered, have gradually increased as anticipated, consumers and businesses in general are still doing well.

To cover potential failed loans, the business set aside $1.2 billion in the first quarter.

Even while it received more money from its customers’ credit card interest payments, Citigroup also increased its provisions for credit losses.

According to Mark Mason, the bank’s finance director, delinquency rates were rising as expected but were still below average for the bank’s “very high quality” loan portfolio.

“We have tightened credit standards specifically as a result of the current market environment in cards, we continue to calibrate our credit underwriting based on what we’re seeing based on macroeconomic trends,” Mason said.

By the beginning of 2024, delinquency rates for branded cards and retail services will likely return to “normal” ranges of 3% to 3.5% and 5% to 5.5%, respectively, Mason predicted. According to Citi’s results presentation, the current delinquency rates are 2.8% for branded cards and 4% for retail services.

In the quarter, Bank of America set aside $931 million for credit losses, a significant increase over the $30 million set aside the year prior but less than the $1.1 billion set aside in the fourth quarter. The bank reported in its results release that the total net charge-offs with credit were $807 million, up from the prior quarter but still below pre-pandemic levels.

“The consumer’s in great shape in terms of credit quality by any historical standards. Employment remains good, wages remain good, and we haven’t seen any cracks in that portfolio yet”, Bank of America Chief Financial Officer Alastair Borthwick told reporters.

According to Jeremy Barnum, finance chief at the biggest U.S. lender, some of JPMorgan’s clients were starting to fall behind on payments, but the delinquency numbers were still quite low.

“We are not seeing a lot there to indicate a problem,” he said.

With net charge-offs of $1.1 billion, the bank more than quadrupled the amount it set aside for credit losses in the first quarter compared to the same period last year, reaching $2.3 billion.

According to UBS analysts led by Erika Najarian, worsening economic conditions will cause “credit deterioration throughout 2023 and 2024, with losses eventually surpassing pre-pandemic levels given an oncoming recession.” Even yet, they predicted that loan defaults would continue to be “below the peaks experienced in prior downturns.”

According to Morgan Stanley analyst Betsy Graseck, large and medium-sized lenders’ net charge offs would likely peak in many quarters as they become more cautious in their underwriting. She said that “this means slower loan growth” in 2023 and 2024.

In a filing on Tuesday, American Express stated that the net write-offs on its credit card loans increased marginally in March from the end of February to 1.4% to 1.7%. From February to March, the amount of past due loans remained constant.

(Adapted from Reuters.com)