The wild gyrations in credit card charge-off rates of the last two years is finally subsiding, providing more certainty for bankcard issuers planning their loan-loss contingency funds for 2012.
And while analysts still are keeping an eye out for rises in charge-offs that could signal a slowdown in the economic recovery, November’s uptick should be no great cause for concern, according to Moody’s Investors Service.
Credit card charge-offs typically increase in November, partly because of a seasonal increase in delinquencies each spring, Moody’s said in a Dec. 28 report.
If an account is late or delinquent, it usually means the borrower is in trouble and the account gradually will progress to charge-off status. It usually takes 180 days for an account to move from delinquent to uncollectible status. An account officially becomes charged-off based on each issuer’s individual policy.
“We expect the overall improving trend in credit card charge-offs to resume and continue well into 2012,” Moody’s said.
The average U.S. bankcard charge-off rate in November rose 17 basis points to 5.38% from 5.21% in October, breaking a three-month streak of declines, Moody’s said. But the average delinquency rate fell, foreshadowing future credit-quality improvement, the firm said.
The average delinquency rate in November declined one basis point to 3.03% from 3.04% in October, marking a record low, Moody’s said.
Citigroup Inc. in November posted an increase in charge-offs, while most other large issuers’ charge-offs remained flat. Bank of America Corp. and Discover Financial Services Corp. each reported slight declines in charge-offs in November, Moody’s said, after analyzing each issuer’s data on a comparative basis.
Overall, the credit quality of the issuers’ securitized receivables remains “quite strong” and credit card charge-off trends should resume their improvement in 2012, based on recent delinquency data, Moody’s said.
“Historically low delinquencies and high payment rates reflect the improved borrower mix in credit card trusts today as weak borrowers have charged off at record levels in the recent recession, and originators have added few new accounts to the securitizations,” Moody’s said.
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