Small Bank Credit Card Losses Explode
Smaller banks have spent years competing with their larger fellows in signing up credit card customers.
Now they are facing the ugly flipside of highly active credit underwriting — increasing defaults and charge-offs.
According to Federal Reserve Data, small banks’ charge-off rates have hit 7.2 percent on average during Q4 — up from 4.5 percent a year ago. And while default levels have been ticking up throughout the credit card underwriting game, small banks have been hit hardest — small defined as those that have less than around $10.4 billion in assets.
There, the average charge-off rate is near an eight-year high, while the 3.5 percent loss rate at large banks remains well below the 10.6 percent seen in 2010.
The great default spike follows a period where banks were working extremely actively to push into credit markets in the early phases of the economic recovery particularly with an eye toward snapping up new affluent customers. The push led to cash rewards and points offers proliferating.
Smaller banks, which could not afford to be so lush with rewards offerings, instead moved to loosen credit requirements for card issuance — a strategy that is now paying the wrong kind of dividends as an increasing number of customers are failing to pay their credit. And that is despite the fact that, by all reporting, the economy is experiencing low unemployment and (gradually) increasing wages.
https://www.pymnts.com/news/banking/2018/small-bank-credit-card-losses-explode/
