Synchrony Financial is feeling the sting of the economic slowdown, but its customers are showing surprising resilience by maintaining healthy purchasing volume and generally solid loan-repayment rates, company executives said Tuesday.
The Stamford, Connecticut-based firm's consumer loan charge-off rate rose 160 basis points during the third quarter to 4.6% from 3% in the prior year, and its delinquency rate rose 112 basis points from the previous year to 4.4%. But those losses are in line with pre-pandemic levels as the portfolio returns to normal, according to Chief Financial Officer Brian Wenzel.
"We're not seeing deterioration," Wenzel said of the company's existing consumer credit portfolio, noting that even the resumption of student loan repayments may not have
Hedging against a worsening economy, Synchrony has tightened certain criteria for originating new loans, according to Wenzel. The company added $105 million to its provision for credit losses between the second and third quarters. The total of $1.48 billion, or 10.4% of receivables, was up from $929 million a year earlier.
The slowing economy is also hurting the ability of Synchrony, which offers co-branded credit cards in partnership with merchants, to sign larger new retail clients as competitors chase a dwindling number of fresh opportunities, said CEO Brian Doubles.
"[Our projected growth] is probably more new program opportunities, startup opportunities, less of the kind of big programs that are out there coming to market," Doubles said, "and I think that'll hold true probably for the next 12 to 18 months."
One bright spot has been consumer installment loans, where Synchrony's volume increased by 29% during the quarter that ended Sept. 30. Earlier this year, the company rolled out a new online buy now/pay later loan program called Lowe's Pay through the home-improvement chain Lowe's.
"We're seeing proof that the [BNPL] product does provide value to us and to our partners," Doubles said, explaining that it extends Synchrony's reach to new customers.
Synchrony's other big concern — besides navigating a rockier economy — involves the impact of new regulations. Those forthcoming rules include both
"We're clearly disappointed with the proposed rules around capital," Wenzel said, claiming that regulators are ignoring differences between institutions. Synchrony had $112.9 billion of assets at the end of the third quarter, far less than certain other banks that are expected to be affected by the capital requirements.
"The tailoring rules have been eliminated by treating us on the same level as a lot of other banking institutions," he said.
Although Wenzel said that the rule changes could have a "15% to 20% higher impact to capital," he argued that Synchrony can navigate the requirements relatively easily. "We can adjust [credit] line strategies [of inactive accounts] without impacting current customers," he said.
Similarly, Doubles said Synchrony is crafting a strategy to cope with the Consumer Financial Protection Bureau's expected
"Late fees are a very important incentive to pay, and $8 just clearly is not an incentive," Doubles said, though he also noted that Synchrony doesn't foresee a diminishment in its ability to extend credit to the same number of customers even with the reduced late-fee cap.
Synchrony posted net earnings during the third quarter of $628 million, down 10% from $703 million during the same period a year earlier. Total loans increased 14% to $98 billion, and purchase volume rose 5% to $47 billion.
"Synchrony continues to see strong demand and capital levels, and the deposit base remains robust," Jefferies analysts wrote Tuesday in a note to investors.
