Bankruptcies and collections are on the rise since mid 2022. Pandemic-related relief and forgiveness suppressed collections for most of 2021 and the first half of 2022.
Since the height of the pandemic, new business openings are at a highly elevated level. Businesses under two years in businesses accounted for 40% of new commercial credit account openings in 2022, up from 27% in 2020. While new businesses seek credit, they tend to be risky – – as it is broadly known that about a third of all businesses fail within the first couple of years in business. That is evident in the collections numbers, which show that newer businesses are driving the overall higher collection levels. As collections become a larger factor, it is critical for lenders to look for ways to mitigate losses through portfolio management efforts.
Further interest rate increases likely this year
Recently, Federal Reserve Chair Powell indicated that further interest rate increases are likely this year. However, the magnitude of increases is unknown since there are still mixed signals in the economy. Inflation has been slowing but is persistent.
After February’s labor market reported strong numbers with continued low unemployment and high job creation, eyes will turn to the inflation report coming out on March 14th. With mixed economic indicators, it will be interesting to see if the Fed increases rates a more modest quarter of a point or takes a more aggressive position with a half-point increase at their March meeting.
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