Credit Card Metrics Show Volatility In January

Credit card companies have been enduring a veritable roller coaster ride, with average delinquency and net charge-off rates surging in January compared to December. These trends have pushed the metrics even higher than those seen in the pre-pandemic era, spanning four years back, according to data compiled by Seeking Alpha.

Delinquency and Charge-off Rates

The average delinquency rate climbed to 3.24% in January from 3.01% in December, remaining stubbornly above the 2.90% mark observed in January 2020. Similarly, the average charge-off rate, at 4.21%, surged from 4.05% in December, standing tall over the 3.71% rate recorded four years ago.

Credit Card Lending

While the total credit card lending showed a 1.6% month-over-month decline, it registered a substantial 9.9% year-over-year increase, consistent with seasonal demand, as noted by Jefferies analyst John Hecht in a recent report. “Issuers have tightened credit, given the current macro, and should expect much weaker loan growth in ’24,” Hecht added.

Analysts’ Perspectives

Citi analyst Aren Cyganovich pointed out that “Year-over-year loan growth decelerated further from elevated levels as issuers are tightening credit and face tougher comparisons following strong growth over the past year plus.” However, despite this trend, consumers’ financial situation appears relatively robust, with average payment rates still exceeding pre-pandemic levels, even though they saw a 0.6% year-over-year dip.

Company Performance

Both American Express (NYSE:AXP) and Capital One Financial (NYSE:COF) witnessed month-over-month improvements in net charge-off rates, attributable to unusual items that inflated their December net charge-offs, as highlighted by Cyganovich. However, overall credit seems to be moving in line with expectations, even though there was hope for further deceleration in year-over-year delinquency rates, as observed with Capital One Financial.

Analysts’ Outlook

According to Jefferies’s Hecht, seasonality has been increasingly prevalent as the economy moves further past the pandemic. However, the year-over-year percentage change in delinquencies witnessed a 3 basis points increase compared with the previous month, albeit remaining “well below” the peak October/November percent change. Hecht emphasized the necessity for a declining year-over-year delinquency trend in the next few months to pave the way for the peak net charge-off year-over-year percentage change, expected in mid-24.

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