The rate at which consumers fall seriously behind on their credit card bills is expected to continue falling throughout the year, but at the same time, it's also expected that nationwide balances on those accounts will grow somewhat.
By the end of 2012, it's projected that charge offs - the number of credit card accounts that are so far behind on payments that lenders have to write them off as being uncollectable - will tumble for the nation's six largest lenders by another 15 or 20 percent to a low of roughly 4.5 percent, according to new data from Moody's Investors Service. And while that would actually be a slower rate of decline than the 40 percent seen over the course of last year - to just 5.5 percent - it will keep charged off account totals well below the all-time high rate of 11 percent seen in the first quarter of 2010.
Moody's also predicts that Capital One Financial will see the largest number of charge offs among the six largest card issuer - which also includes JPMorgan Chase, Bank of America, Citi, American Express and Discover, the report said. That lender's charge off rate should total about 5.7 percent. Meanwhile, AmEx will likely have the lowest default rate at just 2.1 percent of all balances. A lot of that may be the result of the lender having perhaps the most affluent customer base of any of its major competitors, however.
"Together with expected balance growth of about 5 percent, continued improvement in asset quality should lead to a significant increase in profitability this year, with pre-tax profits likely to go up by about 35 percent," said Curt Beaudouin of Moody's.
In all, Moody's expects that Capital One will also help to lead the way in balance growth, particularly owing to its acquisition of the portfolio previously controlled by HSBC Holdings, the report said. AmEx and Discover will also likely see credit card balances expand significantly throughout the year.
Since the end of the recession, credit card balances have fallen considerably, as a result of mass charge offs seen in 2009 and 2010, and also because consumers simply became more conscious about the amount of debt they were carrying. Many made significant attempts to scale back card use and increase the amount they paid into these accounts every month.
