What Were Total Loan Charge-off Rates For The Largest U.S. Banks In Q2 2016?
Loan charge-off rates for the five largest U.S. banks ranged from a low of 0.39% for Wells Fargo to over 1% for Citigroup.
The figures shown above represent the total charge-off rates reported by each bank for its entire loan portfolio. The average figure for the industry is as compiled by the Federal Reserve here.
Notably, the weighted average charge-off rate for these banks is higher than the average figure for the industry – almost completely due to Citigroup’s elevated loan loss figures. While macro-economic factors tend to affect loan charge-off rates across the industry, the difference in these rates among banks can be attributed to two factors:
1. Distribution of loans across loan categories: Some loan types are inherently riskier than others; for example, credit card loans (which are unsecured in nature) have the highest charge-off rates, while commercial loans (which are usually secured through collateral) have much lower charge-off rates. So a bank with a larger focus on credit card lending will witness higher overall charge-off rates.
2. Geographical distribution of a bank’s loan portfolio: Loan charge-off rates in developing countries are usually higher than those in the U.S. Accordingly, a geographically diversified bank like Citigroup generally reports much higher loan charge-off rates compared to banks like Wells Fargo, which is focused almost entirely in the U.S.
The chart below captures Citigroup’s retail loan provisions as a percentage of its loan portfolio. As higher charge-off rates result in a bank setting aside more cash as provisions to cover these losses, we include loan provisions in our analysis as a proxy for the actual charge-off rate.
See the links below for more information about the 5 largest U.S. commercial banks:
- What Was The Total Size Of Outstanding Domestic And Foreign Loans For The Largest U.S. Banks In Q2 2016?
- How Has The Total Loan Portfolio Of The Largest U.S. Banks Changed Over The Last 5 Quarters?
- How Much In Domestic And Foreign Deposits Did The Largest U.S. Banks Hold In Q2 2016?
- How Have Total Deposits For The Largest U.S. Banks Changed Over The Last 5 Quarters?
- How Have The Loan-To-Deposit Ratios For U.S. Banks Trended Over Recent Quarters?
- How Has The Total Loan Portfolio For The U.S. Banking Industry Changed Over The Last 5 Quarters?
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment/ ask questions on the comment section
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to the full Trefis analysis for U.S. Bancorp | Wells Fargo | JPMorgan | Bank of America | Citigroup
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