The average consumer credit card charge-off rate among the top U.S. card issuers is nearing a historic low but should begin creeping upward next year, new data Fitch Ratings Inc. released Nov. 9 suggest.
Delinquency rates on accounts past due, a harbinger of rising charge-off rates, are climbing incrementally. And although charge-off rates may fall further the rest of this year, the trend of declining losses that has persisted for more than two years is poised to begin a gradual reversal soon, Fitch analysts said in a recent report.
“Fitch expects losses to tick up in 2012,” given the recent flattening out and slight increase in credit card delinquency rates, the analysts said.
The average charge-off rate will slow during the fourth quarter “before leveling off and eventually beginning an upward climb, as delinquency and net charge-off rates are believed to be at unsustainable (low) levels,” Fitch wrote.
But a reversal in the charge-off trend likely will occur very slowly, “given changes in underwriting criteria and a broader focus on card transactors over revolvers,” Fitch said, noting card issuers continue to be conservative in granting credit and extending borrowers’ credit lines because of the fragile economy. And in the wake of the recession, many cardholders are paying off their bills in full instead of revolving debt month to month, according to Fitch.
The average net charge-off rate on accounts deemed uncollectible for the seven largest bankcard issuers was 4.53% of total receivables on Sept. 30, down 363 basis points from 8.16% at the same time a year earlier, according to Fitch data. The firm based its analysis on data from Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Capital One Financial Corp., American Express Co., Discover Financial Services and U.S. Bancorp.
The delinquency rate in September on accounts at least 60 days past due was 2.31%, up one basis point from the previous month and up 16 basis points above its recent historic low of 2.15% in July.
Consumers continue to avoid taking on more debt, Fitch noted, citing the long-term decline in total consumer revolving debt. This reflects “a decline in consumer demand for credit and tighter underwriting standards from lenders,” Fitch said.
Although credit card issuers have increased marketing activity “rather significantly” in recent quarters, “higher consumer savings and continued deleveraging will remain a challenge for portfolio expansion over the near term,” Fitch said.
