The two biggest banks in the United States have projected a combined loss of $4.5 billion due to customers who are facing difficulties in paying off their debts. According to Reuters, JPMorgan Chase reported net charge-offs of $2 billion in the first quarter of this year, which is almost double the amount from the same period last year. Similarly, Bank of America saw a surge in net charge-offs, reaching $1.5 billion compared to $807 million the previous year. The losses reported by Bank of America were mainly attributed to credit card debt that is unlikely to be repaid.

Bank of America’s Chief Financial Officer, Alastair Borthwick, stated during an earnings call that the bank is observing the financial struggles of borrowers with below-prime credit scores, whose household spending is being affected by higher interest rates and inflation. While banks earn money from interest payments, they aim to avoid situations where customers fall so far behind on their loans that they become uncollectible.

The Federal Reserve’s recent poll revealed that net charge-offs are also increasing at Citigroup and Wells Fargo, and most banks are tightening lending standards for various types of loans. The poll indicated that there is a tighter lending standard and weaker demand for home equity lines of credit (HELOCs), as well as tightened standards and weakened demand for credit card, auto, and other consumer loans.

Despite these losses, both JPMorgan Chase and Bank of America assert that their balance sheets remain strong. JPMorgan Chase reported a profit of $49.6 billion last year, while Bank of America earned $24.9 billion.

Note: The article contains an image from Midjourney.