Q2 Bank Net Charge-Offs Rise to 12-Year High

Bank net charge-offs have reached a 12-year high, with the total amount rising to $15.4 billion in the second quarter. This significant increase is a cause for concern.

The rise in net charge-offs is largely due to the increasing number of loans that have gone delinquent. In Q2, the delinquency rate for loans 30 days or more past due increased to 1.38%, up from 1.26% in the previous quarter.

Banks are facing a challenging environment, with economic uncertainty and rising interest rates contributing to the increase in delinquencies.

Net charge-offs are a key metric used by banks to measure the amount of loans that have been written off as uncollectible.

According to the article, net charge-offs are calculated by subtracting charge-offs recoveries from charge-offs. In Q2, the net charge-off ratio was 0.55%, indicating that 0.55% of the total loans outstanding were charged off as uncollectible.

A higher net charge-off ratio typically indicates a bank's decreasing ability to collect loan payments, which can be a sign of a struggling economy or a bank's poor lending practices.

In Q2, the total charge-offs were $6.8 billion, with a significant portion of these charge-offs coming from credit card loans, which accounted for $3.3 billion of the total charge-offs.

The rise in Q2 bank net charge-offs has significant implications for corporate lending.

Higher charge-offs indicate that banks are writing off more bad loans, which can lead to a decrease in their lending capacity.

This reduction in lending capacity can make it harder for businesses to access credit, potentially hindering their growth and operations.

According to the data, the net charge-off rate for Q2 was 1.35%, a significant increase from the previous quarter.

Banks may become more cautious in their lending decisions, leading to a decrease in the availability of loans for corporations.

This increased caution can result in higher interest rates or stricter lending requirements, further limiting access to credit.

The impact on corporate lending can be felt across various industries, as businesses may struggle to secure the funding they need to operate and expand.

Credit card charge-offs are at a 12.5-year high, reaching 4.38% in the second quarter of 2024.

This rate is a significant increase from the previous quarter, and it's not just a one-time spike. Charge-offs continue to increase at a fairly steep slope.

The 12-month lag time to placements means that the volume of charge-offs should continue to increase through at least mid-2025.

Credit card loan delinquencies are also at a 12.5-year high, increasing from 3.02% to 3.11% in the second quarter of 2024.

This is a concerning trend, as delinquencies are a six-to-nine-month early indicator of the charge-off rate.

Despite the increasing delinquency rates, the total amount of credit card lending has increased year over year, by 10.8% to $1.142 trillion from $1.031 trillion.

This larger lending pool, combined with a higher percentage of delinquencies, means that firms can reasonably anticipate a high workflow level into mid-2025.