Credit Card Loans sour, Banks not worried


Credit card balances crossed $1 trillion in February. This is the highest from the time of the financial crisis which rocked the US in 2008. According to data gleaned from the Federal Reserve, card issuers like Discover Financial Services, Capital One Financing Corp, Synchrony Financial and Citigroup Inc. all reported much more card write-offs during the first quarter.

No cause of worry

Six of the largest card lenders in the United States- Discover, JPMorgan Chase & Co, American Express Co, Bank of America Corp, Citigroup, and Capital One reported that loans with a minimum of 30 days overdue, dropped during April. This is the bellwether of things to come. Synchrony has announced an increase in dividend. It will also engage in a stock repurchase program costing $1.6 billion. Shares of these private label issuer of the card have dropped by about 26 percent in 2017, marking worst performance among S&P 500 Financial Index.

Analysts and bank executives remain unworried. According to Mark Graf of Discover, banks can easily manage the present credit situation. They see jobs as a principal factor in maintaining the industry of credit cards. It helps that unemployment in the United States continues to be historically low. If it stays like this, US consumers can manage their credit card debt. Although there had been a rise in the charge-off rates, the numbers remain low when compared to historical standards.


Total credit card loans in America have increased every year from 2008. That was the year when the rate of joblessness reached 10 percent. This compelled the issuers to shed off about $100 million in total loans over the subsequent two years. The majority of the growth have come from banks. The latter extended credit to borrowers having a lower credit score. These caused write-offs to revert towards the historical norms. According to Sanjay Sakhrani, an analyst at KBW, the growth nature dictates that a wider individual set must be introduced to the portfolio. This makes it worse. He reminded that these individuals continue to be profitable clients. The growth is back now, creating a portfolio which appears normal in all respects.

When it comes to others, including  Jason Harbes of Wells Fargo, relaxed underwriting standards are a cause to be worried about. He had downgraded credit card sector. Harbes has jotted down in a May 19 report that the quality of credit has clearly become worse over the past two quarters.

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