2023-07-17 10:46:01 ET
With many banks and strategists still expecting a recession within the next year, provisions for credit losses and credit loss reserves are being closely watched by investors. Citigroup ( NYSE: C ) on Friday disclosed its Q2 results , reflecting the rising uncertainty in the quarters ahead.
Its net credit losses show that after rising in 2020, then falling in 2021 and 2022, they're starting to increase again, as seen in the chart below. Net credit losses jumped 77% to $1.50B in Q2 2023 from $850M in Q2 2022. Source: Data compiled from Citi's publicly disclosed financial statements.
Total credit losses increased 43% Y/Y to $1.82B, the company said in its Q2 results.
Credit losses, especially in credit cards, stayed lower than usual during the pandemic as the government boosted fiscal support to keep consumers afloat during shutdowns. Now "net credit losses in cards should continue to normalize in the remainder of the year," Citi ( C ) Chief Financial Officer Mark Mason said during the company's Q2 earnings call.
The company considers a mix of three different economic scenarios when making decisions on credit reserves, he said. Its current reserves reflect about a 5.1% unemployment rate on a weighted basis over eight quarters, and is roughly flat with last quarter, he said.
"Our base case today assumes a mild recession and reserves in the future will consider how are weighting towards downside, upside, and baseline may [be] more subject to our outlook and volumes," Mason said. "Those are the two factors that influence whether we're increasing reserves or not."
"I feel very good about the level of our reserves," he added. Citi ( C ) currently has $20 billion of reserves across its portfolio, he said.
Allowance for credit losses on loans increased to $17.5B at June 30, 2023 from $16.0B at June 30, 2022, according to Citi's balance sheet.
For More on Citigroup:
- Archive of Citi's balance sheets and income statements
- Citigroup's Management Needs to Execute With More Urgency
- Citigroup Q2 earnings miss as market, investment banking revenue disappoint
- Citi plans 4% dividend boost for Q3, logs $1B buyback in Q2
- Citigroup: Broken or Just Underappreciated?
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Citigroup Q2 credit losses anticipate mild recession in year ahead