(Reuters) – Credit card company Synchrony Financial beat second-quarter profit estimates on Tuesday as rapid rate hikes by the U.S. Federal Reserve helped boost interest earned by borrowers, offsetting the hit higher funds for rainy days.
Lenders benefited from the Fed’s aggressive monetary policy tightening, but also had to build in larger provisions for potential defaults as higher borrowing costs weighed on consumers’ financial health.
According to data from Refinitiv IBES, Synchrony posted earnings of $1.32 per share in the quarter under review, compared to an average analyst estimate of $1.24.
Net interest income (NII) rose 8.4% to $4.1 billion, helping to cushion the blow from higher provisions for credit losses to $1.38 billion , compared to 724 million dollars a year earlier.
Last week, America’s biggest banks also reported profits on higher interest rates, but also warned of risks ahead as US consumers cut back on spending and losses pile up on cards credit and office real estate.
Total deposits for Synchrony Financial increased 1.8% to $75.77 billion from the first quarter and 17% from a year earlier.
Investors scrutinized deposit trends at banks and other financial firms after an uncontrolled flight of deposits led to the collapse of three lenders earlier this year.
(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Shinjini Ganguli)