The RDS Business Intelligence team just released its latest predictions for quarterly consumer loan charge-off rates. This is our 27th such set of predictions.

The Federal Reserve Bank will soon report the Consumer Loan Charge-off Rate (CLCOR) for the first quarter of 2023. According to the data published on February 21st, 2023, the total seasonally adjusted CLCOR figure for the fourth quarter of 2022 was 1.65%, while the figure for the third quarter of 2022 was 1.32%. This increase represents the highest jump since the third quarter of 2021, which was the all-time bottom of the series.

In addition, the Delinquency Rate for Consumer Loans continued its upward trend in the fourth quarter of 2022, following the pattern of the previous quarters.

The current prediction for the upcoming report of CLCOR in 2023Q1 is 1.44%, and there are indications that it may reach 2% by the end of this year. Here are the predictions for the next four quarters:

Considering that we experienced a 1.65% charge-off rate in the previous quarter and observing the increasing trend of delinquency rates, it appears that our prediction of 1.44% is underestimated. Below, you can see the performance of our predictions compared to the actual values since 2015Q4, when we began regularly predicting CLCOR.

We can clearly observe that the pandemic caused a significant disruption in the series. During the first couple of years, when economic stimulus packages were injected into the economy, our forecasts were slow to capture the declining speed of charge-off rates. However, in subsequent years, when the stimulus packages ceased and interest rates began to rise, our forecasts lagged in capturing the increasing speed of charge-off rates. Consequently, we believe that the CLCOR figure for 2023Q1 should be higher than the previous quarter’s 1.65% and that reaching the 2% level could occur before the year’s end. However, it should be noted that our assumptions are based on the Fed maintaining the current interest rate and not implementing additional stimulus packages.

CLICK HERE to see an interactive dashboard of our charge-off predictions on the RDS Tableau Public page.

To learn more about the RDS Business Intelligence team, contact:

Kacey Rask : Vice-President, Portfolio Servicing

[email protected]/ 513.489.8877, ext. 261