NEW YORK- U.S. lender Citizens Financial Group cut back on auto lending last year and plans to further reduce its exposure to the segment as it becomes cautious on certain businesses as it factors in risk of a recession, its chief executive officer said in a interview.
Moody’s Investors Service late last year cut the outlook for U.S. auto financing arms to negative, citing likelihood of higher delinquency and provisioning.
Citizens has reduced its auto loan portfolio to about $10 billion as of now from a peak of $14.5 billion in December 2021, Bruce Van Saun recently told Reuters.
“We basically made a decision to move that portfolio down materially over time,” Van Saun said.
“Spreads are tight, so you’re not making a good return on that capital,” he said, adding that there are limited cross-selling opportunities.
Van Saun said it will be brought down to $5 billion to $6 billion by 2024.
Citizens would like to grow its lending business in home equity loans, commercial banking and credit cards, but he said the bank will be selective about overall lending.
“We are being very selective on where we are extending credit given the potential for recession in 2023,” Van Saun said.
Moody’s analyst Warren Kornfeld told Reuters that banks’ auto loan charge-offs now are approaching pre-pandemic levels, whereas other major asset classes such as credit cards and residential mortgages are still well below that mark.
“We believe that most banks recognize the growing risks in auto lending outside of the super prime segment,” he said. The super prime segment refers to consumers who have excellent credit and pose the least risk to banks.
Citizens’ Van Saun said the bank is also tightening its appetite for new mortgage credit, but that move is not as dramatic as that for auto loans.
The bank has let go 30 to 50 loan officers in the mortgage business, he said, adding that the number is not large because it still has 475 loan officers for the segment.
