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Credit card delinquencies push some banks to refocus on better borrowers

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Credit card delinquencies push some banks to refocus on better borrowers

Credit card delinquencies remain high, and some banks are starting to refocus on borrowers with higher credit quality.

Credit card loan delinquency rates edged up on a seasonal basis in the first quarter but dropped from the linked quarter. At the end of 2018, delinquency rates spiked to the highest level in more than six years for the U.S., and the first quarter notched a close second. The banking industry is still growing credit card loan balances year over year while also bracing for a potential turn in the economic cycle.

U.S. banks and thrifts reported $859.95 billion in credit card loans at the end of the first quarter, a 4.8% increase year over year and a 4.8% decrease from the 2018 fourth quarter.

Credit card loans that were delinquent or in nonaccrual status also grew to $23.94 billion as of March 31, up from $21.94 billion at the end of the first quarter of 2018. The total credit card delinquency ratio was 2.78% at the end of the first quarter, an 11-basis-point increase year over year and the second-highest delinquency rate since the third quarter of 2012.

One bank saw a significant year-over-year decline in delinquency rates during the quarter. Holding $6.51 billion in credit card loans at the end of the quarter, Comenity Capital Bank posted a 5.18% delinquency rate, which was a 102-basis-point decrease year over year. Comenity Bank held $10.94 billion in total credit card loans at the end of the first quarter, a 4.9% decrease year over year.

On a call to discuss earnings, Alliance Data Systems Corp. CFO Charles Horn said Comenity Capital Bank, which is an Alliance Data Systems subsidiary, has launched new programs that focus on cardholders who have better credit. Alliance Data also saw delinquency rates improve 10 basis points to 5.25%.

Horn said he expects to see short-term pressure on some of Alliance Data's core metrics, including a decline in credit sales as these "newer" and "healthier" programs pick up.

Discover Financial Services management also talked about adjustments in the company's channel mix and underwriting strategy on new loans during their first-quarter earnings commentary.

"We're pleased with the credit quality," President and CEO Roger Hochschild said on the company's first-quarter earnings call. Discover's $70.64 billion credit card loan portfolio saw a 10-basis-point increase in delinquency rates year over year to 2.56%.

Citigroup Inc., the largest U.S. credit card lender among banks and thrifts, reported $153.02 billion in credit card loans at the end of March, a 1.8% increase from a year earlier but a 5.6% decrease from the fourth quarter of 2018. The company also reported that 2.62% of its credit card loans were delinquent or in nonaccrual status as of March 31, a 13-basis-point increase year over year.

Capital One Financial Corp. Chairman, President and CEO Richard Fairbank called the first three months of the year a "slightly noisy" quarter. The bank is another major holder of credit card loans, with a total of $100.95 billion at the end of the first quarter. Capital One's delinquency rate of 3.90% crept up 15 basis points from the prior year. But delinquency rates in the first quarter likely were driven up by the government shutdown, including delays to some tax refund payments, Fairbank said.

Credit losses have long been low, and the chief executive also expects the card industry to continue ticking up toward what were historically normal losses moving forward. Capital One's loan growth increased year over year, but Fairbank said the bank continues to be cautious on its credit lines.

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Information about a company's specific loan types can be found on its profile page. For aggregate asset quality information on U.S. commercial banks, click here.