The nation’s largest credit card issuers in September reported significantly fewer charge-offs than a month earlier, driving the average bankcard charge-off rate to its lowest level since 2007, according to new data Moody’s Investors Service released Wednesday.
The average delinquency rate remained flat, but an uptick in early-stage delinquencies, or accounts at least 30 days past due, may signal the beginning of the end to releases of large, quarterly loan-loss reserves that have helped to pad issuers’ earnings the past two years, Moody’s said in its monthly report on credit card asset-backed securities.
U.S. bankcard average charge-offs during September declined 75 basis points to 5.27% from 6.02% in August. The average charge-off rate was 363 basis points lower than its level a year ago of 8.9%.
The average delinquency rate for all card accounts past due held steady at 3.04%, but the early-stage delinquency rate for accounts 30 days past due rose one basis point, to 0.87% from 0.86%, and the mid-stage delinquency rate for accounts at least 60 days past due rose two basis points, to 0.65% from 0.63%.
The results mark the first time since January 2009 that all six of the nation’s top credit card issuers posted increases in both early- and mid-stage delinquencies, Moody’s said. Delinquency rates remain at historic low levels, and Moody’s expects the average delinquency rate to remain low or decline further until “at least mid-2012.”
But the trend suggests card issuers may struggle to post year-over-year profit increases in coming quarters.
“The flattening out and subsequent uptick in the delinquency rate signals the beginning of the end of reserve releases that have buoyed these issuers’ earnings over the past 18 to 24 months,” Moody’s analysts wrote in the report. “This is credit-negative, as it has a dampening effect on earnings in an already intensely earnings-pressured environment.”
Moody’s reiterated in its report its forecast that if present trends continue, average bankcard charge-offs will fall below 4% by the end of 2012, largely because of issuers tightening credit underwriting standards during the recession beginning in late 2008.
Card lenders “have begun to ease their credit standards somewhat,” but the economy remains fragile, Moody’s said. With weak job growth and with unemployment rates remaining above 9%, lenders are being cautious about increasing borrowers’ credit lines to prevent a surge in charge-offs.
