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U.S. Card Issuers Delinquencies & NCOs Rise Sequentially in August
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Key Takeaways
Average card delinquencies rose to 2.51% in August but remained below 2.67% a year earlier.
Average net charge-offs increased to 3.29% but stayed below the 3.74% year-ago level.
JPMorgan, Citigroup and Bank of America reported lower card delinquencies than a year earlier.
Credit-card delinquencies and charge-offs edged higher in August across a group of major U.S. card issuers, pointing to a modest increase in consumer credit stress. However, the latest readings remained below year-ago levels, suggesting that the deterioration remains contained rather than indicative of a broad weakening in portfolio quality.
Based on credit-quality data reported by seven major U.S. card issuers, including Capital One Financial (COF - Free Report) , JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Bank of America (BAC - Free Report) , the average delinquency rate edged up to 2.51% in August from 2.50% in July. While this was slightly above the pre-pandemic August 2019 average of 2.48%, it remained below the 2.67% recorded a year earlier.
Similarly, the average net charge-off rate rose marginally to 3.29% from 3.28% in July. However, the metric remained below the three-month average of 3.33%, the year-ago level of 3.74% and the 3.57% recorded in August 2019. Thus, while realized credit losses moved higher sequentially, the broader trend remains more favorable than a year ago.
August Credit Trends for COF, JPM, C & BAC
Capital One’s Master Trust continued to report comparatively higher credit stress in August. Its delinquency rate increased to 3.57% from 3.48% in July, but was down 16 basis points (bps) from 3.73% a year earlier and remained well above the 2.23% recorded in August 2019. The net charge-off rate also edged higher to 4.16% from 4.12% in July, but declined 54 bps from 4.70% a year ago and remained above the 3.74% recorded in August 2019. Meanwhile, principal receivables increased slightly to approximately $23.3 billion from $23.2 billion a month earlier.
JPMorgan's credit trends were more encouraging on the delinquency front. The delinquency rate for its Chase Issuance Trust slipped to 0.80% in August from 0.81% in July and was down 3 bps from 0.83% a year earlier, remaining below the 1.14% reported in August 2019. However, the net charge-off rate increased to 1.66% from 1.58%, although it was down 12 bps from 1.78% a year ago and remained comfortably below the August 2019 level of 2.45%. Principal receivables rose modestly to approximately $11.8 billion from $11.7 billion.
Citigroup followed a similar pattern. The delinquency rate for its Citibank Credit Card Issuance Trust declined to 1.29% from 1.32% in July and was down 7 bps from 1.36% a year earlier, remaining below the 1.53% recorded in August 2019. However, its net charge-off rate climbed to 2.03% from 1.90%, although it was down 35 bps from 2.38% a year ago and remained below the 2.62% level seen in August 2019. Principal receivables were roughly stable at $19.1 billion.
Bank of America also reported an improvement in card credit quality year over year. The BA Master Credit Card Trust II's delinquency rate stood at 1.28% in August, up from 1.26% in July but down 8 bps from 1.36% a year earlier. The rate was also below the 1.56% reported in August 2019. Meanwhile, BAC's net charge-off rate edged up to 2.15% from 2.13% in July but declined 26 bps from 2.41% a year ago and remained below the 2.67% recorded in August 2019. Its principal receivables were roughly stable at $14.2 billion.
What Does the Latest Credit Trend Mean for Banks?
For banks such as JPMorgan, Citigroup, Bank of America and Capital One, the August data suggest a gradual normalization in credit losses rather than a broad-based deterioration in portfolio quality.
Nonetheless, a sustained rise in delinquencies and charge-offs could temper credit-card loan growth. Higher credit costs may prompt lenders to tighten underwriting standards, curb exposure to riskier borrowers and remain selective in extending new credit or raising credit limits. This, in turn, could moderate growth in card balances and constrain interest income from credit-card portfolios.
Moreover, amid a higher-for-longer interest-rate environment, continued pressure on consumer credit quality could prompt banks to prioritize credit discipline, loss containment and risk-adjusted returns over aggressive loan growth. Consequently, card-loan growth and the pace of interest-income expansion could remain modest in the near term.
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U.S. Card Issuers Delinquencies & NCOs Rise Sequentially in August
Key Takeaways
Credit-card delinquencies and charge-offs edged higher in August across a group of major U.S. card issuers, pointing to a modest increase in consumer credit stress. However, the latest readings remained below year-ago levels, suggesting that the deterioration remains contained rather than indicative of a broad weakening in portfolio quality.
Based on credit-quality data reported by seven major U.S. card issuers, including Capital One Financial (COF - Free Report) , JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Bank of America (BAC - Free Report) , the average delinquency rate edged up to 2.51% in August from 2.50% in July. While this was slightly above the pre-pandemic August 2019 average of 2.48%, it remained below the 2.67% recorded a year earlier.
Similarly, the average net charge-off rate rose marginally to 3.29% from 3.28% in July. However, the metric remained below the three-month average of 3.33%, the year-ago level of 3.74% and the 3.57% recorded in August 2019. Thus, while realized credit losses moved higher sequentially, the broader trend remains more favorable than a year ago.
August Credit Trends for COF, JPM, C & BAC
Capital One’s Master Trust continued to report comparatively higher credit stress in August. Its delinquency rate increased to 3.57% from 3.48% in July, but was down 16 basis points (bps) from 3.73% a year earlier and remained well above the 2.23% recorded in August 2019. The net charge-off rate also edged higher to 4.16% from 4.12% in July, but declined 54 bps from 4.70% a year ago and remained above the 3.74% recorded in August 2019. Meanwhile, principal receivables increased slightly to approximately $23.3 billion from $23.2 billion a month earlier.
JPMorgan's credit trends were more encouraging on the delinquency front. The delinquency rate for its Chase Issuance Trust slipped to 0.80% in August from 0.81% in July and was down 3 bps from 0.83% a year earlier, remaining below the 1.14% reported in August 2019. However, the net charge-off rate increased to 1.66% from 1.58%, although it was down 12 bps from 1.78% a year ago and remained comfortably below the August 2019 level of 2.45%. Principal receivables rose modestly to approximately $11.8 billion from $11.7 billion.
Citigroup followed a similar pattern. The delinquency rate for its Citibank Credit Card Issuance Trust declined to 1.29% from 1.32% in July and was down 7 bps from 1.36% a year earlier, remaining below the 1.53% recorded in August 2019. However, its net charge-off rate climbed to 2.03% from 1.90%, although it was down 35 bps from 2.38% a year ago and remained below the 2.62% level seen in August 2019. Principal receivables were roughly stable at $19.1 billion.
Bank of America also reported an improvement in card credit quality year over year. The BA Master Credit Card Trust II's delinquency rate stood at 1.28% in August, up from 1.26% in July but down 8 bps from 1.36% a year earlier. The rate was also below the 1.56% reported in August 2019. Meanwhile, BAC's net charge-off rate edged up to 2.15% from 2.13% in July but declined 26 bps from 2.41% a year ago and remained below the 2.67% recorded in August 2019. Its principal receivables were roughly stable at $14.2 billion.
What Does the Latest Credit Trend Mean for Banks?
For banks such as JPMorgan, Citigroup, Bank of America and Capital One, the August data suggest a gradual normalization in credit losses rather than a broad-based deterioration in portfolio quality.
Nonetheless, a sustained rise in delinquencies and charge-offs could temper credit-card loan growth. Higher credit costs may prompt lenders to tighten underwriting standards, curb exposure to riskier borrowers and remain selective in extending new credit or raising credit limits. This, in turn, could moderate growth in card balances and constrain interest income from credit-card portfolios.
Moreover, amid a higher-for-longer interest-rate environment, continued pressure on consumer credit quality could prompt banks to prioritize credit discipline, loss containment and risk-adjusted returns over aggressive loan growth. Consequently, card-loan growth and the pace of interest-income expansion could remain modest in the near term.
At present, Capital One, JPMorgan, Citigroup and Bank of America carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.