According to its third-quarter earnings report, the credit card company’s consolidated provisions for credit losses were $778 million, versus the benefit of $191 million American Express reported a year ago.
“The change reflected a reserve build of $387 million, primarily driven by growth in card member loans and changes in macroeconomic forecasts, compared with a $393 million reserve release a year ago,” the report said.
Read more: Banks Expected to Boost Loan-Loss Reserves for Third Consecutive Quarter
Earlier this month, PYMNTS reported loan-loss reserves at America’s six largest banks were expected to grow for the third consecutive month by as much as $4.5 billion.
Bank reserves that were raised to help soften the blow of loan losses due to COVID-19 were largely avoided thanks to the influx of stimulus monies. But with loan demand reaching a high, banks are readying for the possibility that increased interest rates will mean credit losses.
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The news comes as inflation continues to eat away at household budgets, thus reducing people’s earning power. As PYMNTS noted recently, that’s led consumers to cut back on spending and seek discounts, in some cases on lower-quality goods.
See also: 87% of Consumers Say Inflation Outpaces Income Growth
At least 70 million American consumers are of the opinion that the recession has already started, according to the report “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” a PYMNTS study based on a panel of 2,632 U.S. consumers.
Nearly 9 out of 10 consumers said their incomes are not increasing fast enough to keep up with inflation. These consumers are most likely to cut back on nonessential spending, changing to cheaper merchants and purchasing lower quality items to adjust to this “universal pay cut.”
A large margin of consumers who saw incomes decrease, remain the same, or rise less than inflation were among those who cut back on non-essential expenses. Of the consumers whose incomes decreased, slightly more than half switched to lower-quality products.
