Pressure on lower-income US households raises delinquency risks, Morningstar DBRS says

Morningstar

Wed 15:48

Oct 21 (Reuters) - Lower-income US households face further pressure on their budgets as inflation stays elevated and the Iran war pushes up gas prices, Morningstar DBRS said on Wednesday, raising the risk of higher delinquencies and charge-offs across most consumer asset classes.
Sticky inflation prompted the US Federal Reserve to raise interest rates in September, with possible further increases on the horizon, bringing the impact of higher rates on consumers into sharper focus. 
     
Here are more details: 
Since the Iran war began in February, the average price of gasoline has risen 46% to $4.50 per gallon as of October 5, the ratings agency said
This compares with an average gasoline price of $3.64 per gallon over the past four years and $3.45 per gallon in the 12 months before the war
Morningstar DBRS said lenders focused on non-prime consumers could face higher provisioning costs, weighing on earnings and potentially putting strain on their credit ratings
Provisions, or rainy-day buffers, are funds banks set aside to cover potential credit losses if borrowers are unable to repay their loans
Non-prime borrowers, who typically have lower credit scores, have less financial cushion to absorb higher costs, increasing the risk of missed loan payments
Results from US lenders this month showed credit quality had been stable so far, with executives pointing to resilience across consumer income groups and in the broader economy

 (Reporting by Manya Saini in Bengaluru; Editing by Sriraj Kalluvila)
 ((Manya.Saini@thomsonreuters.com; X: manya__saini;))