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Credit card lenders saw delinquencies decline slightly in February, while net charge-offs continued to rise, according to data from eight companies compiled by Seeking Alpha.
The average default rate of 3.20% increased from 3.24% in January and 2.59% in February 2023.
The average reading rose moderately above the 2.85% level in February 2020, before the pandemic upended the U.S. economy. In four companies: American Express (NYSE:AXP), JPMorgan Chase (New York Stock Exchange: JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) — default rates remain below pre-pandemic February 2020 levels.
Meanwhile, the average net charge-off rate of 4.44 increased from 4.21% in January and 3.24% in February 2023. Up from 3.83% previously in February 2020.
Jefferies analyst John Hecht points out that February’s seasonal decline in credit card delinquencies was weaker than normal, while net charge-offs (NCOs) rose slightly more than normal.
“The Y/Y percentage change in DQs (defaults) improved by -9 bps compared to the previous month, an important trend that must continue to gain momentum in the coming months for the peak of the NCO cycle to manifest itself in 2H24 – a factor that many are evaluating. planning at this juncture,” Jefferies analyst John Hecht said in a note to clients.
Loan balances at Hecht-covered lenders fell 1.4% M/M to $480 billion, in line with historical February trends and up 10% Y/Y. “Issuers have tightened credit, given the current macroeconomic environment, and should expect much weaker loan growth in ’24,” she said.
Payment rates for the month also point to a slowdown in loan growth ahead.”
Payment rates are an important indicator of loan growth, so we will monitor this metric closely,” Hecht wrote. “We expect prepayment rates to remain elevated in ’24, resulting in slower loan growth.” 