NEW YORK–U.S. lender Citizens Financial Group cut auto lending last year and plans to further cut its exposure to the segment as it becomes more cautious about certain businesses given recession risks. the company’s chief executive said in an interview.
Moody’s Investors Service cut its outlook for the U.S. auto finance sector to negative late last year, citing potential increases in delinquencies and provisions.
Citizens has cut its auto loan portfolio to about $10 billion now, from a peak of $14.5 billion in December 2021, Bruce Van Saung recently told Reuters.
“We basically decided to shrink that portfolio significantly over time,” said Van Saun.
“We’re not making enough returns on that capital because the spreads are tight,” he said, adding that cross-selling opportunities are limited.
Van Saun said it will drop from $5 billion to $6 billion by 2024.
Citizens want to expand their lending operations, including home equity loans, commercial banking and credit cards, but banks say they are selective about general lending.
“We are very selective about where we extend credit given the possibility of a recession in 2023,” Van Saung said.
Moody’s analyst Warren Cornfeld told Reuters that bank auto loan write-offs were close to pre-pandemic levels, but other major asset classes such as credit cards and mortgages remained behind. He said it was far below par.
“I think most banks are aware that auto lending outside of the super prime segment is becoming more risky,” he said. The super prime segment refers to consumers who have excellent credit and pose the least risk to banks.
Citizens’ Van Saun said banks are also tightening demand for new mortgage credit, but the move has been less dramatic than for auto loans.
The bank has laid off 30 to 50 loan officers in its mortgage business, he said, adding that the segment still has 475 loan officers, so that number is not high.