With less than a month left in 2022, credit card issuers can revel in low delinquency rates. But watch out for next year. As our recent Credit Outlook projected, 2023 will not be a year of record low rates. The experience will be a higher risk.
S&P Global summarizes the market, drawing information from Asset Backed securitizations.
- Credit card delinquencies and charge-offs rose for all six major U.S. card issuers in October. Bank executives said such a trend is expected. Credit is normalizing after stimulus aids wane and people come out of pandemic lockdowns.
Back to Normal Means Record Low Delinquency is Just History
- All six major card issuers tracked by S&P Global Market Intelligence posted higher charge-off rates in October. This was both sequentially and year over year.
- American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services and JPMorgan, Chase & Co. posted an average credit card annualized net loss rate of 1.15% in October. This was up from 1.04% in September and 0.90% in October 2021. However, the October figure was about half of the 2.32% recorded in February 2020, just before the COVID-19 pandemic was declared March 12, 2020.
- Capital One posted the biggest year-over-year increase, of 48 basis points, in charge-off rates in October, followed by Citigroup with 32 basis points. American Express had the slightest year-over-year increase of 11 basis points.
- Credit card delinquencies continued to rise across the board in October, with Capital One also posting the biggest month-over-month and year-over-year increases. The average 30-plus-days delinquency rate for the top card issuers was 0.92%, up 12 basis points year over year.
Good News and Bad News for Credit Card Issuers
Credit card issuers can still revel in fact to 2022; delinquencies are low. For the first six months of 2023, the charge-off risk will be based on the aging of credit cardholders that entered the collection queues between July and December of 2022. They must keep an eye on the segments as they flow from one delinquency stage to another. If they can control the aging, the mid-year risk will be limited, but do not forget that customers in these later stages of the collection cycle now face 8% inflation and potentially punitive credit card interest rates because of their delinquency status.
But the collection manager will have to also deal with higher delinquency flows in the early aging buckets during 2023 because that will be where the true risk will be found later in the year.
After all, credit card delinquency is all about the consumer’s household budget. With a cold winter ahead, heating costs will further upset the apple cart.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.