Moody’s: Auto Loans Improve, Credit Cards And Mortgages Stable

Moody’s Investors Service has released its Q1 report on consumer loans and their performances for the biggest U.S. retail banks. The loans includes auto, credit cards and mortgages, according to a release by the company.

Credit card charge-offs increased to 3.64 percent in the first quarter of the year, which is a slower growth rate than the previous year.

“Moody’s expects that year-over-year credit card charge-offs for the selected banks will continue to rise modestly over the next year by an average of around 10 basis points” Moody’s said. “Loan growth remains consistent with recent quarters, with card balances up 4.5 percent year-over-year in Q1.”

As for auto loans, banks have been continuing the trend of tightening underwriting standards, so auto loan charge-offs were down 25 basis points year-over-year, to 0.95 percent in Q1.

“Auto loan balances have declined 2.7 percent over the last year, and Moody’s expects charge-offs to remain stable over the next year,” Moody’s said. “Auto loans outstanding at the largest U.S. retail banks continued to contract modestly in Q1, again indicating the tightening of underwriting standards.”

Moody’s explained that one bank in particular had a good Q1.

“Wells Fargo & company reported the most positive results by far, as charge-offs halved over the last year, falling to 0.82 percent in Q1 from 1.64 percent a year ago,” Moody’s said. “The bank has been shrinking their auto loan business over the last several years and shifting to focus more on higher-quality borrowers. We expect bank auto loan charge-offs to stabilize over the next year.”

When it comes to residential mortgages, charge-offs mostly stayed the same in the quarter, only declining a single base point year-over-year.

“Post-crisis loan performance remains strong and banks continue to reduce remaining pre-crisis legacy loans. Moody’s expects residential mortgage charge-offs to increase only very modestly over the next year. Residential mortgage portfolios declined a very modest 0.9% year-over-year in Q1,” the company said. “Moody’s believes that underwriting standards are on the tight end of historical average standards.”