The lull is over for credit cards, and for pundits who thought that revolving credit was over and displaced by installment lending, it is time to take a second look.
The WSJ reports today:
Close to 27% of U.S. consumers said in October that they had applied for a credit card in the past 12 months, according to the Federal Reserve Bank of New York. That is the highest level since 2019 and well above the record low of 16% recorded a year ago.
And, for those that questioned the social benefits of credit cards in the U.S., consider this:
But the rebound in credit-card appetite through the beginning of autumn suggests consumers could continue to drive the U.S. economic recovery.
“With that, you expect the demand for credit to come back to pre-pandemic levels and continue on the same growth path.”
Things started to change earlier this year after Covid-19 vaccines boosted the U.S. economy. More Americans, after a year of hunkering down, started signing up for new credit cards.
The American Bankers Association weighed in with a view on credit quality, citing data from the FDIC’s latest quarterly report.
“The FDIC’s latest quarterly report shows that banks remain fundamentally sound as they continue to support economic recovery. The industry’s asset quality and deposits remain strong, allowing banks to continue funding loans that make a difference in their communities and the broader economy.
“Total bank lending rose slightly, growing to the highest level since mid-2020. This increase was primarily driven by growth in one-to-four family mortgage loans and automobile, credit card, and commercial real estate lending. Small business lending remained above pre-COVID levels but slowed due to Paycheck Protection Program loan forgiveness and repayment.
“Credit quality remained a bright spot. The net charge-off rate fell to its lowest level on record, and the share of industry loans 90 or more days late declined for a third consecutive quarter ‒ to a level not seen since 2007. Loans 30 to 89 days delinquent remained close to the lowest ratio to total loans ever reported by the FDIC.
And it is not fast and furious lending. Loan Loss Reserves adjusted favorably this year, but:
“Backed by strong portfolios, banks recovered reserves for the third straight quarter while maintaining total reserves well above the pre-recession levels from 2019. With interest rates near historical lows, recovering reserves has helped bolster many banks’ bottom line. With the industry’s overall net interest margin still near a historic low, future Fed decisions on interest rates will play an important role going forward.
“After climbing to the highest level ever reported by the FDIC in the previous quarter, the industry’s tier 1 risk-based capital ratio held strong at 14.27%. Consumers and businesses continued to seek the safety of FDIC-insured bank accounts, with deposits into banks of all sizes growing another 2.3%.
Credit managers working towards their bonuses and annual MBOs should feel on par with their collection brethren. Credit quality is strong now, portfolios are growing, and consumers are back tending to their credit cards.
Now, with 2021 billing cycles starting to close, start worrying about rising interest rates and inflation. And with that, good luck to Jerry Powell!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
