Credit card delinquencies and charge-offs rose for all six major U.S. card issuers in October. Bank executives said such a trend is expected as credit normalizes after stimulus aids wane and people come out of pandemic lockdowns.

Delinquency and charge-off rates were still well below pre-pandemic levels as consumers continue to show resilience despite inflation, high interest rates and a looming economic recession.

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Credit is on the way to normalization

All six major card issuers tracked by S&P Global Market Intelligence posted higher charge-off rates in October, both sequentially and year over year.

American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services and JPMorgan Chase & Co. posted an average credit card annualized net loss rate of 1.15% in October, up from 1.04% in September and 0.90% in October 2021. However, the October figure was about half of the 2.32% recorded in February 2020, just before the COVID-19 pandemic was declared March 12, 2020.

Capital One posted the biggest year-over-year increase, of 48 basis points, in charge-off rates in October, followed by Citigroup with 32 basis points. American Express had the slightest year-over-year increase of 11 basis points.

"NCL rates continue to be less than half of pre-COVID levels," Citigroup CFO Mark Mason pointed out during Citi's third-quarter earnings call. Mason added that normalization is expected to continue in the cards businesses.

"You've seen during COVID, with all the fiscal stimulus, you saw some abnormally low levels. But, I would say, at this point, you're starting to see some normalization as we would expect," Citigroup Treasurer Michael Verdeschi said during a Nov. 3 company conference presentation.

Normalization is "bound to happen," Capital One CEO Richard Fairbank said during Capital One's latest earnings call. "It would be shocking if it didn't happen."

Delinquencies still 'benign'

Credit card delinquencies continued to rise across the board in October, with Capital One also posting the biggest month-over-month and year-over-year increases. The average 30-plus-days delinquency rate for the top card issuers was 0.92%, up 12 basis points year over year.

Delinquencies are "unmistakably normalizing" but remain about 20% below the pre-pandemic level, Fairbank underscored.

"Delinquencies are still benign," Citi's Verdeschi commented, noting that payment rates in Citigroup's cards portfolio are still higher than they were before COVID-19. "So, you're still seeing that portfolio in good shape, but some normalization beginning," Verdeschi said.

On Discover Financial's third-quarter earnings call, CFO John Greene expressed a belief that access to the digital economy has enabled consumers to prioritize credit card payments among many other debt obligations they have.

Bigger yields

Despite the backdrop of inflation and looming economic recession, all six major U.S. credit card issuers booked higher credit card portfolio yields in October, with an average of 22.86%, up 110 basis points from a year ago.

Citigroup posted the biggest year-over-year increase in master trust portfolio yield of 150 basis points, followed by American Express with a 140-basis-point rise.

Bank of America had the smallest year-over-year increase of 69 basis points.

"First of all, we underwrite to an assumption of worsening," Fairbank explained during Capital One's latest earnings call. "We try to make it. So if things go bad, it's not a surprise that it would be really bad banking to be underwriting to good scenarios."

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