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With Defaults Down, Credit Card Companies Likely to Make it Easier to Open New Accounts

Mercator Advisory Group by Mercator Advisory Group
December 16, 2011
in Analysts Coverage
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Credit card defaults continue to trend lower, a pattern that could enable some banks to loosen credit policies.

Some credit card issuers companies, notably Citibank and Capital One Financial Corp., reported increases in defaults for November. But the rates are still near historic lows. And companies like American Express Co. and Discover Financial Services said their default rates remain well below their traditional levels.

Moody’s analyst Jeff Hibbs said defaults, which are known as charge-offs in the industry, are likely to keep falling.

“We certainly think there’s more room to run in terms of the charge-off rate to go lower,” he said.

He expects the industry wide rate to drop below 4 percent of outstanding balances in 2012. Including November data, the rate now is about 5.2 percent on an annualized basis. That’s a vast improvement from a peak of 10.44 percent reported by the Federal Reserve for the second quarter of 2010.

After a period of massive portfolio housecleaning and chargeoffs, accompanied by a pursuit of prime/super-prime prospects, it is no wonder defaults are at a low point. As Mercator has commented, sustained growth of the credit card industry will require a loosening of credit policies and a willingness to underwrite non-prime accounts. TransUnion may be noting an early indication of such a trend.

But TransUnion has spotted a loosening in the credit card market. It said last month that about a quarter-million new cards were issued in June to September to consumers who had had some trouble making payments in the past, as indicated by their moderate credit scores. Card companies need to find new customers, in order to grow, after they spent much of the past two years battling for the same high-credit score, high-spending customers.

Click here for more: http://www.washingtonpost.com/business/industries/with-defaults-down-credit-card-companies-should-make-it-easier-to-open-new-accounts-in-2012/2011/12/15/gIQAZJpiwO_story.html

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