Discover Is Benefiting From High Loan Growth, but Credit Costs Are Set to Rise

As consumer debt repayment rates in the United States normalize, Discover is enjoying a period of significant loan growth. On the other hand, while credit costs had initially normalized slower from historic lows than we had initially expected, they have increased materially in the first of 2023 and we expect them to rise further as we head into 2024. We do not expect this to put any pressure on the bank's balance sheet, though, as the firm is in a strong financial position with good reserves. Additionally, Discover's net interest income will benefit from a larger credit card receivable base now that growth has returned. The bank ended June 2023 with just under than $94 billion in credit card loans, 18.6% higher than the prior year.