Five of the nation’s largest credit card issuers reported improvements in September charge-off rates on outstanding receivables, prompting Moody’s Investors Service to suggest in an Oct. 18 report that August’s uptick in charge-off rates was a blip, not the reversal of an overall trend of improving charge-off rates.

“The sharp reversal (in September’s credit card charge-off trends) supports the notion that the August monthly increase in charge-offs was largely driven by seasonal patterns related to higher delinquencies in March,” Moody’s analyst Jeffrey Hibbs notes in the report.

Despite recent ups and downs among specific issuers’ charge-off rates, the firm expects the industry’s average credit card charge-off rate to continue “steadily declining in the coming months.”

If present trends continue, average card-industry charge-off rates could decline by another 100 to 150 basis points by the first quarter of 2011, “to 8% or 8.5% from 10% where it stands now,” Hibbs tells PaymentsSource.

Moody’s Credit Card Index, which tracks the average charge-off rate for major card issuers, stood at 10.72% in September 2009. Moody’s charge-off index peaked at 11.21% in March, and except for August it has been declining steadily since then (see story). 

Because early-stage delinquencies–a measure of the percentage of receivables that are between 30 and 60 days past due–have continued to decline overall this year also suggests charge-off rates will continue to decline, Hibbs says.

A one-time spike in early-stage delinquency rates in March contributed to August’s higher charge-off rates in August, Hibbs contends. A further indication that charge-off rates will continue to fall this year is that early-stage delinquency rates as a whole did not rise in September as they usually do, he adds.

“Normally in the fall we see early-stage delinquencies begin to rise, but this year we have not seen that; delinquency rates generally have continued to improve,” Hibbs says.

Bank of America Corp. on Oct. 15 reported in regulatory filings that its charge-off rate in September declined to 9.99%, down 174 basis points from 11.73% in August. Citigroup Inc. says its September charge-off rate was 8.99%, down 219 basis points from 11.18% in August. JPMorgan Chase & Co. says its September charge-off rate was 7.78%, down 40 basis points from 8.18% August. Discover Financial Services says its September charge-off rate was 7.15%, down 83 basis points from 7.98% in August. American Express Co. said its September charge-off rate was 4.7%, down 80 basis points from 5.5% in August.

Only Capital One Financial Corp. showed an increase in charge-offs between August and September. Cap One’s charge-off rate in September was 8.38%, up 19 basis points from 8.19% in August.

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