Declines in delinquencies, charge-offs fill credit card issuers with optimism

Executives of major credit card issuers remain optimistic about the credit environment as June saw continued declines in delinquencies and net charge-offs.

The group average charge-off rate for JPMorgan Chase & Co., Bank of America Corp., American Express Co., Capital One Financial Corp., Citigroup Inc. and Discover Financial Services stood at 1.35% in June, down 31 basis points from May and an increase of 84 basis points from the year-ago period.

The average credit card delinquency rate dropped 5 basis points month over month to 0.80% in June. The figure was 53 basis points lower than the 1.33% reported in June 2020.

However, the average trust portfolio loan gross yield for the group declined to 21.73% from May's rate of 22.14%. On a year-over-year basis, the latest figure was up 218 basis points.

BofA expects the low level of late-stage delinquencies to continue to tail off in the third quarter. During BofA's latest earnings call, CFO Paul Donofrio, said total net charge-offs could stay near current levels for at least the next couple of quarters as he expects lower card losses, partially offset by lower net recoveries and other products.

Consumer behavior became a topic of interest on the call as well, with analysts asking whether the bank expects a permanent decline in consumers using cards as revolving lines of credit. BofA CEO Brian Moynihan said that while stimulus payments allowed many consumers to responsibly pay down credit card lines, he does not see a fundamental shift in consumer behavior.

"When they can get out and spend more money, which is starting to happen, I think you'll see them use these lines, short-term purchases," Moynihan concluded.

Citi CFO Mark Mason was also positive about delinquency trends. The bank believes the remarkable amounts of liquidity, created by stimulus and other relief programs, will keep credit stable in its U.S. portfolio during the year. As far as the timing and level of losses for 2022 are concerned, Mason said it depends on whether the stimulus results in a permanent benefit.

On the other hand, JPMorgan tried to remain objective in its guidance while taking note of the elevated cash buffers in consumers. The firm expects charge-offs to be below 2.5%. "As we continue returning to normal, presumably in 2022, we should see both of those come back slightly to historical trends," CFO Jeremy Barnum added.

Click here for data on credit card master trust yields, net charge-offs and delinquencies in Excel format.