US credit quality is declining
xaw New York
Bank analysts fear new turbulence in America’s financial sector due to loose components in the loan portfolios. S&P Global warns that the asset quality in the balance sheets of US banks is on a downward trend: the share of loans, which have been criticized as weak, in the credit volume has now reached 3.5%, which means an increase of more than one percentage point within a year and a half. In addition to the commercial real estate market, the market strategists also point to the card business as a source of problems.
There, the proportion of loans in arrears has recently jumped to 3.3%. In addition, according to Fed data, the write-off rate shot up to 4.5% in the second quarter, reaching its highest level since 2011. S&P Global expects a “gradual deterioration”. This is because the situation for America’s consumers is tense despite a more stable economy: savings built up during the Corona period have eroded, expensive basic consumption is also financed on credit – and because interest rates of more than 20% are due in the event of late payment, low-income households are at risk of slipping into a downward spiral.
Balances jump to record levels
But despite numerous warning signals, in the third quarter only 20% of the banks surveyed by the Fed stated that they had tightened their lending standards in the card segment – this represents a decline of 16.4 percentage points compared to the previous year. As a result, US credit card balances are shooting up to unprecedented levels of more than $1 trillion. Not only is the percentage of bad loans growing significantly, but the absolute volume is also skyrocketing – a development that investors are likely to view with particular skepticism in the third quarter reporting season.
