Credit risk indicators may appear unusually strong right now, but collection managers should be careful not to mistake today’s exceptional numbers for a long-term trend. Delinquency rates across major credit card issuers continue to improve, operational performance is outperforming expectations, and Federal Reserve data shows historic lows in consumer delinquency. While the current environment offers a welcome period of stability for credit management teams, market conditions can shift quickly, and rising stress levels could emerge as lenders expand credit activity in the years ahead.
It may be the calm before the storm, but the numbers are exceptional. Collection managers, take solace in the fact that in 15 days, all your potential charge-off is in the collection work queues. And these days, the operational results are better than ever. Seeking Alpha published five headlines that indicate the second half of the year will be easy-breezy for collection operations.
- Alliance Data Systems (NYSE: ADS) Card Services segment’s reported a delinquency rate of 3.2% as of May 31, 2021, compared to 4.8% in the same period a year ago.
- Bank of America (NYSE: BAC) reports an improving delinquency rate of 1.03% as of May 31, down from 1.17% in April and 1.46% in May 2020.
- Capital One Financial’s (NYSE: COF) credit card delinquency rate of 1.69% improves from 1.92% in April and 3.15% in May 2020.
- The first of the credit card companies to report credit quality metrics for May, Discover Financial Services (NYSE: DFS) credit card delinquency rate declined to 1.50% in May 2021 from 1.69% in April and from 2.36% in May 2020
- Synchrony Financial’s (NYSE: SYF) credit card delinquency rate of 2.2% improves from 2.4% in April 2021 and 3.6% in May 2020.
Operational numbers run ahead of the Federal Reserve reporting Q12021 delinquency was a record low, at 1.89%. Even with this historic low, 2Q numbers should look better.
Make hay while the sun shines, but remember, what goes up must come down, and the inverse is also true. What goes down will also go up.
2022 might exhibit some stress as credit card issuers bulk up, but for now, enjoy exceptional operational results in credit management.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group