Growth in Card Loans Sank to 2.8% in 1990

NEW YORK - The onset of recession in 1990 slowed growth in banks' credit card loans to its lowest rate in at least five years, according to the annual American Banker survey of top card lenders.

Card loans outstanding at the 100 largest banks in the field rose a mere 2.8% in 1990, well below the 13.7% of 1989 and even higher levels that prevailed since this newspaper began compiling the data in 1985.

10-Year Low a Possibility

Other industry data suggest that the bank card industry had its slowest year since the 1981-82 recession.

Some of the nation's largest credit card banks, including Citicorp's South Dakota subsidiary and First Chicago Corp.'s Delaware unit, showed declines in credit card balances at year-end. (Rankings of the top 100 banks and thrifts begin on page 9A.)

The slow or negative growth at some banks can be attributed in part to a greater tendency to remove loans from their balance sheets via securitization. But there are other signs that credit card usage, reflecting overall consumer spending and credit trends, is on a slide that has continued into 1991.

According to RAM Research USA, a Frederick, Md., company that tracks bank card activity, the average cardholder currently charges $2,110 a year compared with $2,256 in 1990.

Balances Show a Decline

Less spending translates into lower outstanding balances on which banks collect much of their current profits, based on annual interest rates averaging about 19%. "Outstandings are off for the first six months of the year," said Robert McKinley, president of RAM Research.

Net income at the top 100 credit card operations listed in the American Banker survey equalled $9.2 billion in 1990, a 2% decline from the 1989 level.

Lower charge volumes caused banks to reap smaller fees from the merchants that accept their credit cards.

Profits Remain Sturdy

And lenders suffered a significant increase in charge-offs to 3.4% of total card loans at year-end 1990, compared with 2.9% a year earlier.

Despite the falloff in credit card lending, analysts are optimistic for the future of the business. With the cost of funds low, banks still make healthy spreads on any healthy card loans they make. And bankers are stepping up their search for new markets to serve, whether by making card loans to less creditworthy people secured by savings deposits, or promoting usage in nontraditional locations such as supermarkets and fast-food restaurants.

"To restore profitabilty, this industry known for imaginative marketing will bounce back with products that don't yet exist," said Robert K. Hammer, an investment banker in Simi Valley, Calif." I don't see credit cards as a dinosaur."

Even after accounting for a doubling in securitization last year - to $24.6 billion from $12 billion, according to Dean Witter Reynolds - card loan growth is clearly on the wane.

Equity Loans Do Well

The 2.8% growth at the 100 top commercial banks (there was also a 25% drop at the top 100 thrifts, many of which have been exiting the business) fell well short of banks' 21% surge in home equity loans in 1990. Homeowners became more comfortable using their residences to finance vacations, cars, and other purchases. They also get the benefit of a tax deduction on loans secured by a home, a benefit that was taken away from card loans by the 1986 tax reform act.

At the same time, people are using their cards less, or are using fewer cards. A study conducted by RAM Research showed that 30 prominent bank card issuers lost 5% of their active accounts during the first six months of 1991.

So even as revolving balances rise on the average account - they now stand at $1,626 compared to $1,489 in 1990 - total outstandings may not. According to Mr. McKinley, this is not such a a bad thing.

"It's like a shakeout," he said. "The [loan] quality should be better in a year or two. The business will be leaner and meaner."

Chase Has the Top Bank

Other results of the survey include the following:

* Citicorp remains the largest company in the business despite an active securitization program. At the end of 1990, all card-issuing subsidiaries had $19.5 billion in outstandings. The holding company total was off $3 billion, or 14%, while its lead card lender, Citibank (South Dakota), fell more than $1 billion, or 12%, to $8.2 billion.

* While Citicorp as a whole remained No. 1, Citibank (South Dakota) lost the top spot among individual banks to Chase Manhattan Bank (USA) of Delaware, which grew 12% to $10.4 billion in outstandings.

* Growth at American Express Centurion Bank, which owns receivables for the Optima card, outpaced the industry with a 31% growth to $6.8 billion, making it the fourth largest credit card bank.

* Among the top 10 card banks, the biggest percentage gainer was No. 9 Manufacturers Hanover Trust Co. - 53% to $3.6 billion.

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