U.S. banks finally see upturn in credit-card borrowing -Breaking
© Reuters. FILE PHOTO – A Nice, France, shopper pays for groceries with a credit card, on April 3, 2019. REUTERS/Eric Gaillard/File Photograph
By David Henry
NEW YORK (Reuters) – Big U.S. banks including JPMorgan Chase & Co (NYSE:) and Citigroup (NYSE) may see some gains from the recovery in credit-card sales, but consumers would be redirected and could lose their loans.
Jamie Dimon (JPMorgan Chairman and CEO) warned investors last week of increasing recession risk and predicted a “hurricane” for them.
Cards are a profitable business for banks in steady economic times. According to analysts, a continuing upturn of card borrowing could provide relief for banks.
Citigroup recorded a significant drop in revenue due to U.S. Citi-branded card sales during the pandemic. It ended 2020 with 13% less quarterly revenue than a year before.
According to Federal Reserve data, the overall credit card balances and loans similar at U.S. banks have increased 15% since May 25th, compared with a year ago and are back close to pre-pandemic levels. Banks are also benefiting from the fact that cardholders allow more balances to rotate and accrue interest fees, rather than paying them monthly.
Although the banks don’t disclose how much revolving cash they have, it is important because this generates more income than transaction fees from merchants.
Jason Goldberg, an analyst at Credit Card Research said: “The most profitable aspect of the credit cards business is the consumer’s revolving debts and then repaying them over time.” Barclays (LON:).
Marianne Lake, chief of Chase consumer bank, told investors at JPMorgan’s May conference that JPMorgan’s revolving assets are up 8 percent from their low.
Consumers reduced their credit card usage during pandemic lockdowns and paid off balances as never before thanks to stimulus payments.
Following a plunge to 51.3% at the outbreak, 52.6% of active credit card accounts have revolving assets share increased over the past quarters to 52.6%. These balances have remained at about 60% in seven years, after having risen to 70% following the 2008 financial crises, according the American Bankers Association.
According to banks, cardholders pay off debts more slowly than before the pandemic. This results in higher interest rates. According to Discover Financial Services (NYSE ), payment rates remain significantly higher than they were before the pandemic. However, the rate has stabilized and even slowed in the first quarter.
Last year, as lockdowns began to lift, banks increased their card marketing efforts and relaxed the credit standards they had previously tightened in response to the pandemic.
The quarterly issue of credit cards rose 39% to 21.5million in the fourth quarter 2021, compared to a previous year. Credit reporting agency says this is the highest record number and 14% more than the time before the pandemic. TransUnion (NYSE:).
Chase, America’s largest issuer of credit cards, found proof to support investor fears that some consumers have stopped using their cards. JPMorgan’s Lake reported.
Lake explained that the “younger generations,” contrary to popular opinion, were not opposed to credit cards or credit cards. Chase customers who are part of the Millennial or Gen-Z generation spend 60% on credit cards. She also said that they borrow more as they get older.
Some are concerned about the effect of credit card promotion on banks, which is a sign that the Federal Reserve has tightened its policy. This could lead to a rise in the likelihood of recession.
According to the banks, they have learned that it is better to know who to lend to and how much to make profits than to try to predict recessions.
TransUnion data shows that card delinquency rate have increased in the last three quarters but are still well below their pre-pandemic level. Federal Reserve data shows that the charge-off rates on bank bad credit cards increased to 1.57% from 1.82% in quarter one. They are half the rate they were prior to the pandemic, and still low enough that banks can make money.
Barclays’ Goldberg noted that unemployment is not a major driver of credit card losses. However, wages are increasing and it seems like the situation will continue for now.
Goldberg stated that “in the short-term” it should be profitable. Banks must be aware of any financial downturn in the future.