U.S. banks have reportedly recently suffered a 20 percent jump in credit card losses.
The soaring bad debts has fueled fear about the financial health of middle America, the Financial Times explained.
Recently disclosed results showed Citigroup, JPMorgan Chase, Bank of America and Wells Fargo took a combined $12.5 billion hit from soured card loans last year, about $2 billion more than a year ago. The FT reported.
“People are using their cards to get from pay check to pay check,” said Charles Peabody, managing director at the Washington-based investment group Compass Point. “There’s an underlying deterioration in the ability of the consumer to keep up with their debt service burden.”
To be sure, Reuters recently warned that U.S. banks, already under pressure from slower loan growth and low interest rates, could be facing yet another challenge as a rising number of Americans fall behind on their credit card payments.
While the rates remain significantly below the levels hit during the 2008-2009 financial crisis, rising delinquencies could result in higher loan losses for lenders.
“A noticeable rise in delinquency rates - even from very low levels - is worth paying attention to,” said Andrew Haughwout, senior vice president at the New York Federal Reserve.
Delinquency rates surged during the financial crisis as the economy crumpled and thousands of people lost their jobs. In the aftermath of the crisis, lenders tightened their standards to curb losses from non-performing loans.
With the United States now approaching full employment, lenders are more willing to take risks and extend loans and cards to people with low credit scores.
“We have seen some loosening of standards on card originations: low-credit-score individuals getting credit cards or extended limits, which allow them to borrow more,” Haughwout said.
And there apparently is no end in sight for American consumers being tempted to open more lines of credit.
The number of open credit card accounts in the US is forecast to reach 488 million this year, according to Mercator Advisory Group, a rise of 108 million from post-crisis lows in 2010.
“Yet borrower delinquencies are outpacing rising balances. While still less than half crisis-era levels, the consultancy forecasts soured credit card loans will reach almost 4.5 percent of receivables this year, up from 2.92 percent in 2015,” the FT explained.
To be sure, U.S. consumer credit outstanding rose in November by the most in 16 years as credit-card balances surged, recent Federal Reserve data showed, by $11.2 billion, to $1.023 trillion.
The acceleration in revolving debt shows Americans’ credit-card balances were mounting during the holiday-shopping season, Bloomberg reported.
Meanwhile, Fitch Ratings recently said that performance weakened marginally for U.S. credit card issuers again in the third quarter with more of the same likely for the next several quarters.
Credit losses continued their upward spike in third-quarter 2017 with average net chargeoffs (NCOs) and 30+ day delinquencies increasing 44 and 18 basis points (bps), respectively, year-over-year. Reuters cited Fitch as reporting.
"In recent months, some retail credit card issuers have increased their credit loss guidance for 2017 and 2018, suggesting that further credit deterioration for retail cards is likely," said Director Michael Taiano.
"Coming off of historically low credit loss rates, however, means that losses for the largest credit card issuers are still below historical averages," said Taiano.
Newsmax Finance Insider Chris Markowski recently warned that soaring credit card debt should be wake-up calls for Americans.
"Even if you personally think you currently have a good handle on your credit card debt, all it takes is one emergency to go from feeling your debt is manageable to being in over your head — or in over your credit card limit. A common mistake that I frequently encounter, is people asking for investment returns that surpass the interest they are paying on their debt," Markowski wrote.
(Newsmax wire services contributed to this report).
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