As credit card portfolio health continues to improve and consumer spending gradually picks up, card issuers are poised to see the first increase in overall credit card receivables next year, Moody’s Investors Service predicts in a Dec. 21 report.

Various factors are conspiring to potentially reverse the trend in which total card receivables have declined to just more than $800 billion in October from $973 billion in August 2008, Moody’s says.

As consumers dig out of the recession, credit card defaults and delinquencies continue to fall, which is empowering lenders to begin loosening more-restrictive underwriting policies put into place in 2009 when the recession took hold, Moody’s analysts say. Additionally, consumer spending in recent months has shown healthy increases in key sectors, including retail and gasoline, and unemployment has stabilized, driving year-over-year increases in card-spending sales volume.

“If present trends continue, we expect sometime in 2011 to see a reversal of the pattern of the last two years in which consumers were deleveraging, or paying down, overall debt,” Jeffrey Hibbs, a Moody’s analyst, tells PaymentsSource.

The average charge-off rate on U.S. consumer credit card outstandings declined again in November to 8.58%, 21 basis points lower than 8.79% in October and 198 basis points lower than 10.56% a year earlier, Moody’s said.

For the 13th consecutive month, the overall card delinquency rate also fell, to 4.38%, down 183 basis points from 6.21% a year ago.

Now that issuers have washed the majority of troubled accounts from their portfolios, Hibbing says “issuers are now in a position to begin loosen underwriting standards they aggressively tightened during the recession, providing an opportunity for new (borrowers) to enter the (receivables) pools.”
The percentage of consumers who pay off their credit card accounts in full has increased during the past two years. This year, each of the five largest securitized credit card trusts has seen an increase, ranging from 3% to 6%, in the percentage of accounts paying off their balances in full each month, Moody’s data show.

But the percentage of consumers who revolve their balances from month to month is likely to begin to increase again in the next several months, Hibbs suggests.

As lenders “begin once again to compete for market share” and loosen underwriting standards, more potential revolvers and customers with “lower credit quality” whose credit lines were closed or reduced during the recession may open new card accounts, Hibbs contends. This, in turn, would increase new account originations, likely contributing to growth in overall credit card receivables, he says.

“We are likely to see more people getting back into borrowing, which will probably increase lender risks, but not to the extent that we saw before the recession.”

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