Research and Statistics

Credit card delinquency rates dip in Q3, Fed data shows


Credit card delinquencies were down and charge-offs up slightly during the third quarter of 2008, according to the latest banking industry figures released Tuesday by the Federal Reserve Board.

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Delinquency rates on credit card payments dipped slightly during the third quarter of the year while charge-offs edged upward as the economy continued to slide into an economic slowdown, according to industry lending data released Tuesday by the Federal Reserve Board.

Fed: Credit card delinquencies fall
Fed: Credit card delinquencies drop, charge-offs rise

According to data released by the Federal Reserve, credit card delinquency rates unexpectedly fell in the third quarter of 2008. Charge-off rates rose, the Fed’s survey of banks said.

Source: Federal Reserve survey, all banks, seasonally adjusted, Q3 2008

The delinquency numbers appear to contradict analyst forecasts and company results released in recent weeks showing dismal performance and deteriorating credit card collections. According to the Fed data, seasonally adjusted delinquency rates for all U.S. banks were 4.79 percent in Q3, down from 4.88 percent during the previous quarter.

Delinquencies are credit card bills that are 30 days or more past due. Charge-offs are the value of uncollected credit card balances removed from the books and charged against a bank’s loss reserves. The rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer. In the economic slump, both rates tend to head higher as consumers have greater difficulty in paying their credit card bills.

Seasonally adjusted credit card charge-off rates for all banks rose from 5.47 percent in Q2 to 5.62 percent during the third quarter. The Fed may revise the rates after initial release as more data become available. The data are a snapshot of the three months ending Sept. 30, 2008, just before some of the major Wall Street meltdown hit full stride.

A delinquency number out of step
Susan Menke, an economist and financial services industry analyst at Mintel Comperemedia in Chicago, downplayed the significance of the latest delinquency data. “If you look at the longer term trend, it’s been upward since Q4 2006. We have to wait until the revised figures come out. I’m really hearing nothing but negative news from everybody.”

In October, for example, Capital One reported its 30-day delinquency rate rose by nearly 10 percent from the prior quarter, from 3.64 percent to 3.99 percent. Its charge-off rate rose a smaller amount, from 4.15 percent to 4.30 percent.

“These credit metrics reflect both normal seasonal trends as well as continued credit pressure from the weakening economy which will translate into additional pressure in future quarters,” Cap One Chief Financial Officer told analysts in a conference call discussing the firm’s third-quarter 2008 results.

Bank of America reported similar trends in its third quarter earnings. Its 30-day delinquency rate in its consumer credit card portfolio increased 36 basis points to 5.89 percent. A basis point is one-hundredth of a percent. “We’ve continued to see increased delinquencies in our card portfolio in those states most affected by the housing problems,” Bank of America Chief Financial Officer Joe L. Price told analysts in October.

It was the same story at Chase, the largest consumer credit card issuer in the United States in terms of outstanding balances. In the third quarter, its 30-day delinquency rate for credit cards jumped from 3.46 percent to 3.69 percent.

Fed officials could not be reached immediately for comment on the data, released at 3 p.m. Tuesday.

Credit card delinquency rates were the sole aberration in the data. Every other category of loan rates — including commercial and residential real estate, leases and agricultural loans — showed increases in delinquency and charge-off rates.

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