(Bloomberg) -- Citigroup Inc. is shuttering unused credit card accounts as a growing number of customers fall behind on their payments.
The bank has also increased its capacity for collecting bad debts as part of its efforts to manage losses, Chief Financial Officer Mark Mason said on a conference call with journalists. That work has also included decreasing customers’ credit-card limits if they aren’t using them and tightening underwriting to ensure new accounts go to customers with higher credit scores.
“We’re watching the intent to pay very closely,” Mason said. “We’re constantly monitoring and managing this.”
Banking giants like Citigroup tend to follow a common playbook when they start to see signs that consumers are struggling to keep up with their bills. With moves like proactive credit line decreases or shuttering unusued accounts, banks are trying to avoid becoming a customers’ lender of last resort right as they’re facing trouble.
As one of the country’s largest credit-card issuers, Citigroup’s efforts could be a harbinger of what’s to come at other major banks.
Citigroup’s total provisions for credit losses were $2.5 billion in the second quarter, up from $1.8 billion in the same period a year earlier. That included $1.93 billion in net credit losses tied to its US personal banking division.
Write-offs have risen significantly as consumers have spent through the savings they amassed during the Covid-19 pandemic lockdowns, when US government stimulus helped keep consumers flush with cash, Mason said. Despite the setback to consumers, Citigroup’s revenues tied to its US personal banking division rose.
The bank is not alone: Wells Fargo & Co. and JPMorgan Chase & Co. each saw net charge-offs from their credit card businesses soar more than 60% in the second quarter compared to a year ago.
At Citigroup, credit losses were particularly high in the firm’s retail services division, where the bank partners with brands like Home Depot Inc. or Best Buy Co. to offer credit cards to those retailers’ customers at checkout.
The bank now expects its full year net charge-off rate for the branded cards business — which is home to its popular proprietary cards like the Double Cash card — to be between 3.5% and 4%. That business finished the quarter with a net credit loss rate of 3.82%.
In retail services, that rate is expected to be between 5.75% and 6.25%, though the company warned it’s likely to be in the higher end of that range.
The bank has started to see a growing divergence between customers with high credit scores and those with lower credit scores in terms of spending, with less prime customers rapidly pulling back on their spending, Mason said.
“The consumer is slowing,” Chief Executive Officer Jane Fraser said, noting there’s nothing that’s particularly worrying her about the bank’s quarterly results. “A lot of the spending and the growth areas we are seeing, in the underlying numbers, is being driven by the affluent customers.”
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