The credit card delinquency rate was nearly flat sequentially, and year-over-year increases diminished for the second consecutive quarter across US banks, reinforcing expectations for a manageable peak in bad loans if the economy holds up.
The percentage of credit card loans at least 30 days overdue increased 3 basis points sequentially to 3.36% in the first quarter, according to data from S&P Global Market Intelligence. The year-over-year increase in the delinquency rate fell to 73 basis points from 88 basis points in the fourth quarter of 2023 and from a recent peak of 92 basis points in the third quarter of 2023.
For the first time in the cycle, all consumer loan categories including cards are showing improvement in year-over-year delinquency performance, and "as trends start to mirror typical seasonality, [net charge-off (NCO)] forecasting improves," Jefferies analysts said in a May 16 note.
"There should be improving confidence in the outlook for credit," they said. "These trends support the notion of a peaking NCO cycle" in the second half of 2024.
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Decelerating growth
Year-over-year growth in credit card loans decreased to 10.0% in the first quarter, well off readings above 15% in 2022 and 2023 but still much higher than total bank loan growth of 1.7% during the period.
Banks have been tightening credit card standards overall for seven consecutive quarters, according to a Federal Reserve survey of senior loan officers.
While rapid growth in receivables since a slump early in the pandemic has raised worries about household debt burdens and how much capacity consumers have to continue to increase their spending, banks have said credit usage is still moving back up to pre-pandemic norms. Payment rates — the percentage of outstanding balances cardholders pay off each month — remain elevated.
"Even setting aside the structural drift away from cash, credit card debt should scale up with the nominal economy," economists at BofA Global Research said in a May 10 note, observing that nominal growth has been strong because of solid real economic growth and a spurt of inflation.
"As a share of disposable income, total credit card debt in [the fourth quarter of 2023] was still below its pre-pandemic level," they said. They also cautioned about warning signs, including faster growth in the pool of delinquent loans than disposable income since late 2019, and unique stresses on lower-income households, which are less likely to be protected from rising interest rates by fixed-rate mortgages.
The Jefferies analysts acknowledged that "our sector perspective is aligned with a soft landing outcome" for the economy.
Growth outlook
Issuers like JPMorgan Chase & Co. still expect double-digit percentage receivables growth in 2024.
Wells Fargo & Co. posted one of the highest year-over-year increases in receivables among the 20 biggest credit card lenders, at 15.3%, which it attributed to new products as it pivots away from the mortgage business.
The bank is continuing to add new card offerings, and its higher-quality products help it acquire customers with higher credit quality, according to President and CEO Charlie Scharf. The push is likely to add meaningfully to profits in a couple years, the executive said at an investor conference May 29. "It's something that we know is almost built in as long as we don't get credit wrong, which we have a high degree of confidence that we've gotten right at this point."
JPMorgan Chase Chairman and CEO Jamie Dimon has described himself as "cautiously pessimistic," citing risks including high government deficits and wars.
Nevertheless, recent credit performance has gone benign, Dimon said at the same conference. "It's the best it's ever been."