Currently, in the United States, credit card companies are recording an increase in losses, demonstrating the greatest degree of intensity since the Great Recession.
The relevant information is contained in a research note by Goldman Sachs, which was published at the end of last week. Analysts of the financial institution say that the rapid growth of the loss rate of credit card companies has been recorded since the beginning of 2022. According to them, the rate of negative dynamic is the highest since the crisis of 2008.
Goldman Sachs analyst Ryan Nash says that delinquencies may continue to show a lag from seasonal indicators until the middle of next year. He noted that currently there are no experts in the bank who expect that losses will reach the maximum level for most issuers at the end of this year or at the beginning of 2025. According to him, the observed negative dynamic can be characterized as a unique phenomenon, since it is not accompanied by a recession. The corresponding state of affairs was recorded in three of the last five cycles of losses.
Ryan Nash says that the current situation resembles the characteristics of what happened in the late 90s of the last century. He also stated that there is a certain degree of similarity with the cycle observed in the period from 2015 to 2019 when losses showed a growth dynamic after a period of active lending.
Currently, the United States is overcoming such an economic challenge as the historically high level of consumer credit card debt. In August, this figure exceeded the landmark mark of $1 trillion. The current state of affairs has provoked concerns about the insecurity of loans among consumers and service providers.
The lack of guarantees of financial security has led to the fact that a significant part of the recipients of credit funds began to rely on overdrafts. This tactic of behavior provides them with the opportunity to cover short-term needs for money and unforeseen expenses. Also, these actions allow you to maintain an acceptable level of purchasing power.
Experts note that financial flexibility has proved costly not only for citizens with low incomes but also for almost 70% of persons with earnings above the average. Representatives of different groups from the point of view of material well-being found themselves in the same situation when their expenses exceeded the amount of funds in their accounts. Also, fees were charged to consumers.
Experts point out that overdrafts, which were initially perceived as a way to overcome difficulties, eventually aggravated the unfavorable financial situation of citizens. High inflation and rising costs narrow the room for maneuver and limit the ability to ease the burden of a difficult economic period.
The results of a special study indicate that in the United States, 90% of respondents who find it difficult to cover the costs of their bills face additional financial problems. At the same time, it was recorded that about 7 out of 10 overdraft cases had consequences in the form of a decrease in the availability of credit funds.
Also, according to the results of the study, it was found that consumers who used overdrafts to cover expenses in excess of $400 faced a large number of difficulties. Among them, 41% had problems when paying bills and when purchasing basic necessities. Difficulties were also recorded in the form of deterioration of credit ratings, the need to resort to more loans, and problems with paying interest.
As we have reported earlier, Goldman Sachs CEO Says About Risk of Prolonged Inflation.