It’s hard for credit card issuers to expand lending when customers keep a lid on their bills the way they are these days.
The percentage of outstanding principal balances that Citigroup (NYSE: C) cardholders paid off jumped 71 basis points from the previous month to 21.7% in August. Such trends helped push up payment rates across the industry. (Performance data for the Big Six through reports filed Monday is shown in the graphic below. Interactive controls are described in the captions. Text continues after the graphic.)
At Citi, the average payment rate during the three months through August – a measure that smooths out frequently jagged fluctuations – was also up 36 basis points to 21.2% from the three months through July. Among Citi’s five biggest domestic card competitors, only American Express’ (AXP) payment rate moving average fell in August, with a 53 basis points drop to 30.8%.
Amex’s payment rate reflects its uniquely high-spending, affluent clientele. Aside from a steep dip late last year, industry payment rates have been climbing to new heights. They currently stand at 20-year records, according to data from Moody’s Investors Service.
The trend reflects the purging of lower credit quality accounts during the recession and its aftermath, and a shift toward customers who generate interchange revenue for issuers by ringing up heavy transaction volumes.
Credit losses have fallen to levels below what issuers expect during a full economic cycle, but loan balances have been moving sideways. At a seasonally adjusted $851 billion in July, revolving debt is about where it was when it pulled out of a sharp contraction in early 2011. Revolving debt fell at a 6.6% annual rate in July, following an annualized drop of 4.4% in June, according to data from the Federal Reserve. (Revolving debt was flat at about $815 billion between May and July before adjusting for seasonal factors.)
Month over month, August chargeoff rates, or the annualized amount of receivables written off as a percentage of outstanding balances, fell at five of the country’s six largest domestic card lenders, in line with the typical seasonal pattern. The percentage of balances overdue by one to two months was roughly flat, bucking the usual seasonal increase.
At Discover (DFS), which is scheduled next week to report results for the fiscal quarter that ended in August, the chargeoff rate fell 3 basis points from July to 2.2% in August. (Data here is for securitized receivables.)
If the recent pace at which early stage delinquencies have been translating into chargeoffs holds, Discover’s loan losses through January should stay on par with credit quality standard-bearer Amex.
Some of the favorable credit numbers are attributable to unsustainably high recoveries of previously charged-off debt, and collections practices have come under increasing scrutiny from regulators and prosecutors.
By and large, however, card performance appears to be stuck in a rut, thanks to high payment rates, low chargeoffs and weak receivables growth.