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Card Issuers' Charge-Offs, Delinquency a Mixed Bag in November

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The rate of U.S. credit card defaults was mixed in November for major issuers amid the coronavirus-induced economic slowdown. Credit card loans are charged off after consumers are delinquent on numerous payments and a bank determines that the loans won't get repaid.

Details

Bank of America’s (BAC - Free Report) charge-off rate declined to 1.50% in November from October’s 2.00%, while delinquencies were 1.46%, up from 1.36%.

Also, JPMorgan’s (JPM - Free Report) delinquency rate deteriorated to 1.02% from the prior month’s 1.00%. However, its rate of losses on credit card loans fell 30 basis points (bps) in November to 1.59%. Likewise, another major credit card issuer, Capital One’s (COF - Free Report) charge-off rate declined to 2.57% from 3.11% in October, while delinquency rate rose 10 bps to 2.29%.

On the contrary, Citigroup (C - Free Report) recorded a rise in both charge off and delinquency rates in the reported month. Credit card charge-off rate increased to 2.57% from 2.03% in October and its delinquency rate rose 44 bps from the prior month to 1.82%.

Further, Synchrony Financial’s (SYF - Free Report) adjusted charge-off rate decreased to 3.10% in November from October’s 3.30%, while core delinquencies rose 20 bps to 3.00%. Also, Discover Financial’s (DFS - Free Report) delinquency rate increased to 2.03% in the reported month from 1.99% in October, while its charge-off rate fell 35 bps to 2.55%.

On the other hand, American Express’ (AXP - Free Report) witnessed improvement in both charge off and delinquency rates in November. The rate of charge-offs was 1.90%, down 30 bps from the prior-month level. Also, its rate of delinquencies of 1.00% fell from 1.10% in October.

Our Take

Though the economy is gradually recovering, there is no chance that it will go back to pre-crisis level anytime soon. So, card issuers are likely to witness a rise in charge-offs and delinquency rates as the payment deferral program progressively winds down.

The actual impact of slowdown is likely to be seen in early 2021, as customers reassess their financial position and many credit card issuers stop offering forbearance. However, the likelihood of another stimulus package is likely to offer some support to banks, despite unemployment rates remaining at high levels.

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