The stats: Younger borrowers are falling further behind on their loan payments—specifically auto loans and credit card debt—compared to older cohorts, according to the Quarterly Report on Household Debt and Credit report from the Federal Reserve Bank of New York.
What’s slowing down repayment?
What banks should watch: As a whole, debt balances are still above pre-pandemic levels, though the debt level of younger consumers has fallen below pre-pandemic levels. Banks are keeping an eye on their rapid descent to worsening levels.
What does the future hold? Currently, major banks have reported that the increasing delinquencies haven’t had a major impact on their loan portfolios.
Banks have prepped for this exact scenario by setting aside hefty loan loss provisions in Q3 and Q4 to bolster their loan portfolios in the event of a recession. But even though delinquency levels overall haven’t yet breached pre-pandemic levels, banks might experience a shift in the near future, especially among younger borrowers. Many young consumers who are struggling with credit card debt and auto loans also have student debt. And under current plans, the student loan forbearance period could end later this year. Time will tell which debt these consumers will opt to address first, if they can address any at all.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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