Credit metrics creep toward prepandemic levels


Dive Brief:

  • Credit card metrics, including delinquency and charge-off rates, are edging closer to pre-pandemic levels for some card issuers.
  • Continuing its steady climb, Discover Financial Services’ charge-off rate for January reached 2.81%, according to a company filing Monday with the Securities and Exchange Commission. That’s up from 2.54% in December and 2.46% in November. Discover’s loan delinquency rate of 30 days or more in January edged up to 2.67%, from 2.53% in December and 2.36% in November.
  • Private label card issuers Synchrony Financial and Bread Financial also saw increases. Synchrony’s net charge-off rate jumped to 4.2% in January, from 3.5% in December, although its delinquency rate crept up only slightly to 3.8% in January from 3.7% in December, according to that company’s Tuesday filing. Bread’s January net loss rate of 6.7% remained the same as in December, and its delinquency rate for January was 5.8%, up from 5.5% in December, according to its monthly filing.

Dive Insight:

The rate levels generally slid after the start of the deadly COVID-19 pandemic in early 2020. Now, card issuers’ charge-off and delinquency rates are marching higher, closing in on their pre-pandemic levels, as higher inflation and interest rates spur them on. A charge-off refers to a debt the lender has written off as a loss.

Consumers are leaning on credit cards more as they grapple with the higher cost of goods and services. Analysts covering the industry have predicted a rise in consumer credit losses if unemployment increases and the economic outlook remains dark. 

At Stamford, Connecticut-based Synchrony, “credit trends continued to normalize across our portfolio as consumers worked through excess savings and payment behavior migrated toward pre-pandemic levels,” said Chief Financial Officer Brian Wenzel in a January news release detailing the company’s fourth quarter earnings results. Partially driven by higher net charge-offs, Synchrony increased its provision for consumer credit losses $640 million, to $1.2 billion.

During its fourth-quarter earnings call in January, Riverwoods, Illinois-based Discover projected that its net charge-off rate would creep up this year, to a range between 3.5% and 3.9% for 2023. That surprised analysts such as Oppenheimer & Co.’s Dominick Gabriele who were expecting a lower estimation. He called it a “shocker” in a January note to investor clients. 

The pace of change is expected to decrease in the second half of the year, Discover Chief Financial Officer John Greene said Tuesday at the Credit Suisse Financial Services Forum

For now, spending and use of credit remains “robust” among Discover cardholders, Greene said. Employment data continues to be strong, “which is certainly a positive for lenders like us,” he said.

However, consumers’ savings rate has declined as the pandemic has ebbed, Greene said. And although credit card balances as a percentage of disposable income are less than they were pre-pandemic, that figure has increased over the last six months, he added.

“We’re looking out over the horizon and ensuring that we’re making good conservative credit decisions,” he said.

Discover cardholders’ payment rate is about 300 basis points higher than it was pre-pandemic, Greene said. “We expect that to continue to normalize and probably end up somewhere between 100 and 150 basis points higher than where it was pre-pandemic,” he said.

Card issuer American Express, which caters to premium-oriented consumers with its annual fee products, said its January net write-off rate for consumer cards reached 1.5%, from 1.2% in December, and its January delinquency rate remained the same from December, at 1.0%, according to a Wednesday filing with the Securities and Exchange Commission.   

Amex Chief Financial Officer Jeff Campbell has said he doesn’t expect higher, pre-pandemic levels for consumer credit delinquencies and write-offs to return soon, partly because the company has a more premium product mix now than it did pre-COVID.


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