Credit Card Losses Rising at Alarming Rates Since the Great Financial Crisis

Goldman Sachs has raised concerns about the increasing rate of credit card losses, stating that credit card companies are experiencing their highest losses since the Great Financial Crisis, except for that period.

Credit card losses reached a low point in September 2021, likely due to stimulus measures. However, since the first quarter of 2022, they have been rising rapidly, at a pace reminiscent of the 2008 financial downturn.

Currently, losses stand at 3.63%, representing a 1.5 percentage point increase from the lowest point. Goldman Sachs predicts losses will rise another 1.3 percentage points to 4.93%. The Federal Reserve Bank of New York reports that Americans collectively owe over $1 trillion on their credit cards, marking a new high.

Analyst Ryan Nash expressed his outlook, suggesting that delinquencies could continue to surpass seasonal trends until the middle of the following year, with losses potentially peaking in late 2024 or early 2025 for most issuers.

Nash noted the unusual trend of worsening losses despite the economy not being in a dire state. He pointed out that three of the last five credit card losses occurred during recessions, except in the mid-1990s and from 2015 to 2019. Drawing from historical data, Nash identified similarities between the current cycle and the late 1990s and the 2015–2019 period. He observed that losses tend to rise following a period of robust loan growth, and the pace of normalisation in this cycle aligns with historical patterns.

Moreover, Nash highlighted that history indicates losses typically peak six to eight quarters after the peak in loan growth. As such, he expects the credit normalisation process to continue, projecting a completion date of late 2024 or early 2025.