Credit card lending is likely to remain sluggish in the near term, according to one analyst, but a continued decline in card chargeoffs indicates "the bleeding has stopped" from loans that went into default during the recession.
The average charge-off rate on U.S. consumer credit cards declined in December for the fourth consecutive month, and current trends suggest the rate will continue to fall at least through the first half of this year, Moody’s Investors Service said in a report released last week.
"The improvement in chargeoffs is a good sign, and fourth-quarter results showed that card spending has risen somewhat,” says Scott Strumello, an associate with New York-based card-consulting firm Auriemma Consulting Group. “But whole segments of the potential audience for credit cards are still sitting on the sidelines waiting for the economy to improve, and lenders are not going to move too aggressively anytime soon to court them.”
The charge-off rate on outstanding credit card balances in December declined to 8.03%, down 55 basis points from 8.58% the previous month and down 229 basis points from 10.32% during the same period a year earlier.
The average delinquency rate on credit cards was 4.17%, down 192 basis points from 6.09% a year earlier. Early-stage delinquencies–those at least 30 days past due–fell 44 basis points, to 1.05% from 1.49%, marking their lowest level since Moody’s began tracking average credit card delinquency rates in 2000.
If present trends continue, the average charge-off rate will dip below 7% in mid-2011, Moody’s analysts forecast.
The largest credit card issuer trusts in December each posted monthly improvements in charge-offs “as the steady declines in delinquency rates from the summer continue to translate into lower losses,” Moody’s wrote in its report.
With continuing improvement in chargeoffs, plus the expectation that overall credit card receivables balances will “begin to climb as the year progresses” after declining for more than two years, Moody’s said it expects to see “continued downward pressure” on the average credit card charge-off rate “well into 2011.”
