Credit card portfolios took it majorly on the chin in the Great Recession of 2009 to 2010. The impact, in terms of portfolio characteristic changes and profits, on the credit union/bank card industry was stunning.
According to the R.K. Hammer/Card Knowledge Factory, outstanding credit card loans fell by $200 billion, or 19% YOY (year-on-year), as cautious consumers reduced usage.
Portofolio Metrics 2009-10
Total accounts on file, credit card accounts purged by issuers plus charge offs and voluntary account closures, declined 18% YOY.
Net charge-offs soared from 4% prior to the Great Recession to an average of 8%, with some credit card portfolios as high as 12%.
As unemployment rose, the number of active credit card accounts slipped 13% YOY driven by less usage by cautious consumers.
Also, credit card issuer profits sunk by 67% YOY, as ROA fell precipitously from 4.5% to 1.5% industry (P/T ROA) average in 2009.
Additionally, new marketing budgets for credit cards declined by 33% YOY in the 2009-2010 period, as many issuers were fighting for their existence, thus not focusing outward.
Portfolio Outlook 2019-2020
R.K. Hammer notes it has taken much of the last ten years to restore the card industry to its former level, with end-of-year receivables hitting a historic record of $1.05 trillion.
Those bank card issuers who have an Economic Downturn Contingency Plan for the next Recession for every operating division in their card businesses, updated annually, will fare better than those who wait for the next economic shoe to drop this time.
Hammer forecasts the downturn will develop in late 4Q/19 to 2Q/20. No one knows for sure, until it is validated in a two quarter GDP rear view mirror look. The expectation the next downturn will be less severe and unlikely to be worse than for banks in 2009-2010, given the length and depth of the post-recession present asset bubbles.
In anticipation of the present bubbles bursting, some credit card have stepped up forecasts for credit card loan loss provision in 2018 and 2019.
When asked: What are the bank credit card industry leading technical indicators telling you? R.K. Hammer comments, “Prepare yourself. Update. Your old Plan may no longer be valid.”
Risk-Adjusted Revenue 2018
Hammer recently reported credit card revenue for 2018, based on the all-important “Risk-Adjusted” Revenue calculation (RAR), defined as top line revenue for credit cards (all interest and fee income) adjusted for net card loan default risk, needs to fall between 13% and 15%.
R.K. Hammer is a premier provider of card industry solutions for issuers wanting to survive the next downturn, including: Card Portfolio Valuations, Card Portfolio Sales, Economic Downturn Contingency Planning, Expert Witness Projects, and their Information analysis division, Card Knowledge Factory.