Charge-Off Rates Set Quarterly Record

An important indicator in the banking industry is the charge off rate.  According to the FDIC’s Quarterly Banking Profile for Q209 “charge-offs and noncurrent loans continue to rise”.

FDIC insured banks charged off $48.9 billion in the second quarter of 2009 as compared to $26.4 billion a year earlier.  The annualized net charge-off rate was 2.55% as compared to 1.95% in Q4 of 2008. 

A $22.5 billion year-over-year increase in charge-offs were from commercial and industrial loans, while credit card loans represented a $4.6 billion increase.  The annualized net charge-off rate on credit card loans reached a record 9.95% in Q209.

Also of note is the fact that the noncurrent (90 days or more past due or in a nonaccrual status) loan rate has risen to a record level (increased by $41.4 billion in Q209).  It’s no surprise that residential mortgages led the charge followed by real estate construction and development loans.  This is the 13th consecutive quarter where the noncurrent loan rate has increased.

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Credit Card Rates Increasing

Within the past year I have had numerous conversations regarding the increase in credit card APR/rates.  From my ground level perspective it has been readily apparent the credit card companies have been increasing rates and payment requirements in an effort to bolster their bottom line.

With the credit card reform act going into full effect by February of 2010 many credit card issuers are trying to extract as much money as they can from their credit card holders.  The new act will provide greater consumer protection against increases in rates and other payment provisions.  However, many believe that the new act is too little too late.

For more information visit CNNMoney.com or click to read “Credit card rates rise in 1st half of ‘09: Group says bank profit from credit card debt rose as their costs to borrow money declined“.

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