According to the third quarter's delinquency data released by
the American Bankers Association (ABA) earlier this week, card
delinquencies fell to 2.75% in Q3 2012, the lowest level since
1994. The report also captures an improvement in delinquency
figures for other consumer loans for the quarter, including
personal loans and non-card revolving loans. The trend clearly
shows a conscious decision by people to cut down on discretionary
spending and to clean up their credit record in view of the
sluggish economic environment. But while reducing delinquency
levels mean lower charge-offs that are good for banks, they also
mean lower interest incomes for banks from open-ended loans. This
will likely reflect through a decline in revenue figures for the
country's biggest card lenders like JPMorgan Chase (
JPM
), Citigroup (
C
), Capital One (
COF
) and
Bank of America-Merrill Lynch
(
BAC
), over subsequent quarters.
See our full analysis for
JPMorgan Chase |
Citigroup | Capital One | Bank of America
For The Full Spectrum Of Loans, The Figures Are
Mixed
As part of its quarterly Consumer Credit Delinquency
Bulletin, ABA reports the delinquency figures for eight
closed-ended loan categories and three open-ended loan categories.
While closed-ended loans are those which have a fixed repayment
period (like car loans or home loans), open-ended loans (like card
loans) don't have such a restriction. In either case, a loan is
termed delinquent if the customer does not make any payment towards
it in 30 days.
|
Delinquencies
|
Q3 2012
|
Q2 2012
|
|
Closed-ended Loans
|
|
|
| Personal Loan (↓) |
2.14% |
2.15% |
| Direct Auto Loan (↑) |
0.95% |
0.92% |
| Indirect Auto Loan (↓) |
2.08% |
2.23% |
| Mobile Home Loan (↑) |
3.51% |
3.15% |
| RV Loan (↑) |
1.27% |
1.15% |
| Marine Loan (↑) |
1.55% |
1.53% |
| Property Improvement Loan (↓) |
0.89% |
0.90% |
| Home Equity Loan (↑) |
4.20% |
4.09% |
|
Open-ended Loans
|
|
|
| Bank Card Loan (↓) |
2.75% |
2.93% |
| Home Equity Lines of Credit (↑) |
1.93% |
1.91% |
| Non-card Revolving Loan (↓) |
1.28% |
1.35% |
The table above summarizes the delinquency figures for Q3 2012,
and provides Q2 2012 numbers for comparison, with the arrow next to
the type of loan representing a rise or fall in delinquency rates.
As we mentioned earlier, loans linked to discretionary spending
(cards / personal / property improvement) have shown a decline in
delinquencies, hinting at a more cautious approach by customers. It
must be noted here that most home loan delinquencies for Q3 2012
are still rising despite an improvement in home prices for the
period, as the delinquency numbers will take a few quarters to
catch up.
But When It Comes To Cards, The Impact Will Be Quite
Noticeable
The country's biggest card lenders have been jostling with the
issue of card loan defaults since the economic downturn of 2008,
something evident from the chart above which shows Citi's credit
card provisions as a percentage of outstanding card loans. As loan
provisions and charge-offs go hand-in-hand, the chart reflects the
magnitude of write downs the country's largest bank and credit card
issuer has had to undertake over the years. A lower delinquency
rate bodes well on this aspect of the bank's credit card business
as it means that the bank will have to set aside less cash as
provisions with customers repaying loans in a timely manner.
But there is a downside too. As customers repay their loans and
curtail their spending activities, there will be
a noticeable reduction in the growth of credit card loans
for the bank. We currently forecast that the size of Citi's
outstanding credit card loans will grow by roughly 3% each year
over our forecast period.
You can better understand how the bank's share prices will be
impacted if the growth rate is lower than this by making changes to
the chart below.
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