Net charge-offs on consumer loans at US banks rose for the sixth consecutive quarter in the first quarter of 2023 and are now slightly below the levels in the second quarter of 2020.

Meanwhile, the amount of delinquent consumer loans declined from year-end 2022 but remained above the level from three years ago, according to data compiled by S&P Global Market Intelligence. The delinquency rates measure loans that were at least 30 days past due or in nonaccrual status.

The higher net charge-off and delinquency rates came as the balance of consumer loans reached a record high in 2022 of $4.786 trillion. In comparison, outstanding consumer credit in 2020 dropped by 0.2% year over year to $4.185 trillion, as the government injected trillions of dollars to stimulate the domestic economy.

So far in 2023, the growth of consumer loans in the first quarter was slower compared to the first quarter of 2022, while the growth of gross loans and leases was more aggressive.

Loan officers have continued to tighten underwriting standards across credit card, auto loans and other consumer loan segments, amid weaker demand in those categories, according to the most recent Senior Loan Officer Opinion Survey published by the Federal Reserve in May.

. . With global debt hitting the $300 trillion level, higher borrowing costs are creating stress throughout the financial system. Debt Reckoning is an 11-part series examining the issue across business sectors and economies. Cracks appear in US economy as debt, delinquencies creep up Rising interest rates do not stop US utility infrastructure, renewables spending Consumer loan net charge-offs at US banks approaching pre-pandemic levels US investment-grade companies to pull back on growth plans, deleverage Ballooning maturity wall a growing risk for speculative-grade companies The changing face of technology M&A Private credit poised to capture larger share of LP portfolios Recession raises risk of another debt crisis in the eurozone Eurozone banks face profit, liquidity drag as €500B of COVID-era debt comes due Even with clean balance sheets, oil and gas drillers exposed to rate increases Home prices defy soaring mortgage costs, adding pressure on Fed to raise rates .

Delinquencies set to keep rising

The credit normalization is set to continue, executives at US banks said in June.

Credit quality is returning to more historical totals with delinquencies moving closer to 2019 levels, and there are plenty of issues going forward that will likely lead to a recession at some point, said Daniel Pinto, president and chief operating officer at JPMorgan Chase & Co.

"But I don't see for the moment a crisis. It's just a slowdown in the economic cycle to deal with inflation, and that's probably it," Pinto said at an investor conference on June 2.

JPMorgan was the US bank with the most consumer loans as of March 31, according to Market Intelligence data. Net charge-offs in the first quarter raised by 59 basis points year over year to 1.45%.

U.S. Bancorp Vice Chair and CFO Terrance Dolan also projected that net charge-offs will be normalizing to pre-pandemic levels over the next several quarters. U.S. Bancorp's first-quarter net charge-off rate was 1.36%, up 52 basis points year over year.

"With an expectation of a mild or modest sort of recession, we are going to see, as an industry, nonperforming assets starting to tick up," Dolan said at an investor conference.

The US banking industry is at a strong position to navigate a recession that many predict, in part because of the reserves that have been built over years, said Brian Moynihan, chairman, CEO and president of Bank of America Corp.

"We feel generally pretty good, and frankly, the whole industry, because the stress testing, the work that's going on for the years. I think is a much more solid industry," Moynihan said June 1 at an investor conference.