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Expected credit losses at U.S. banks increased for Q4 2022 to $20.4 bn

Provisions for expected credit losses at U.S. banks increased for the seventh consecutive quarter in the last quarter of 2022, reaching $20.37 billion during the period, according to S&P Global Market Intelligence data.

The fourth-quarter 2022 total represents a more than 43% increase from positive provisions of $14.23 billion a quarter earlier.

The upward trend began in the second quarter of 2021 and has persisted as the Federal Reserve raised interest rates to combat inflation and markets brace for a possible recession.

Expected credit losses at U.S. banks increased for Q4 2022 to $20.4 bn

Rising provisioning trend

Provisions for credit losses trended upward at most of the 20 largest U.S. banks in the fourth quarter, with 15 reporting quarter-over-quarter increases and only five reporting sequential declines.

JPMorgan Chase & Co., the largest U.S. bank based on total assets as of Dec. 31, 2022, reported a fourth-quarter 2022 provision of $2.42 billion, up from $1.16 billion in the linked quarter. The company’s ratio of reserves as a percentage of gross loans also increased quarter over quarter to 1.72%.

The net reserve build of $1.4 billion was driven by updates to the firm’s macroeconomic outlook, which now reflects a mild recession.

In the event of a recession with unemployment reaching 6%, Chairman and CEO Jamie Dimon said the company would need an additional $6 billion in reserves.

Fifteen of the 20 largest banks in the U.S. reported quarter-over-quarter increases in their reserves as a percentage of gross loans at the end of 2022, while three reported decreases and two reported no change.

Expected credit losses at U.S. banks increased for Q4 2022 to $20.4 bn

Total reserves tick up

Total reserves at U.S. banks rose slightly in the period, marking the third consecutive quarter-over-quarter increase after a long-term trend of declines dating back to the end of 2020.

Expected credit losses at U.S. banks increased for Q4 2022 to $20.4 bn

The industry booked $195.3 billion in total reserves in the fourth quarter of 2022, up from $185.56 billion in the linked quarter. Reserves as a percentage of total gross loans increased slightly to 1.60% from 1.55%.

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AUTHORS: Alex Graf, Gaby Villaluz – S&P Global Market Intelligence data