US Banks Auto Loan Update
More than one year ago, the total amount of auto loans on US bank balance sheets peaked at $551 Billion according to call report data. That amount has been decreasing since that peak in September 2022 to $539 Billion in September 2023.
US Banks consistently grew auto loan volume and kept the assets on balance sheet. Report showed consistent growth from $267 Billion in March 2011 to $483 Billion in December 2019. The COVID-19 pandemic slowed growth for the first few quarters of 2020, but auto loan balances started further growth from $499 Billion in March 2021 to $551 Billion in September 2022. Why have banks started decreasing on balance sheet auto loans after that point?
Looking at the performance of auto loan may shed some light on this behavior. The percentage of delinquencies and non-accrual loans follows a very cyclical pattern. Delinquencies peak annually in December because of holiday spending but consumers get back on track in the following quarter partially because of incoming tax refunds which acted like a forced savings.
During the pandemic, total percentage of delinquent and non-accrual loans fell as stimulus payments from the US Federal government flowed to consumers — bottoming in March 2021 at 1.62%. Since then, levels have consistently grown, getting to 2.95% in September 2023. This is the highest level in over 10 years and as mentioned earlier, December is a month where we see a local high from overspending.
We expect auto loan total percent of delinquent and non-accrual loans to be over 3% in December 2023 and US banks may reduce their inventory of auto loans accordingly. Delinquency levels are above the stable level of 2% in the early 2010s and now appear to be breaking through pre-COVID highs.
Well will keep watching.
For this report, we used data tools developed by the team at RECURSION CO. We hope to study other asset types using these tools over the following months.
Paul Mangione
Fort Schuyler Advisors
Disclaimer: https://www.ftschuyler.com/disclaimer
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