Untapped opportunities in card lending?

Maple sugaring time means tapping trees for sweet sap. Improving credit ratios suggest more card business waiting to be tapped.

In the wake of the credit crisis, improving credit performance is a good thing, of course. But it can also be a flag that there's potential growth waiting to be gone after, in a judicious way.

Recognizing this means remembering that lending is a business of risk-- measured risk, to be sure--but still, a risk. The only 100% safe loan is the one not made.

So, the latest credit card statistics from TransUnion have a two-sided message, according to Steve Chaouki, group vice-president.

Looking at latest numbers

In TransUnion's quarterly credit card report, for the first quarter of 2013, the credit reporting and analysis company found that the national credit card delinquency rate fell to 0.69% in the first quarter. This rate was down about 5.5% from the 2012 first quarter delinquency ratio of 0.73%. And it was down 18.8% from the final quarter of 2012. (TransUnion defines card delinquencies as 90 days past due.)

The shift from yearend quarter to opening quarter reflects, to a significant degree, the tendency for card purchasers to pay off holiday and other debt, frequently with tax refunds, according to TransUnion's analysts. This is also a factor in the fall of average card outstanding balances. Average credit card debt fell 1.7% from the first quarter of 2012 ($4,962) to the first quarter of 2013, but the rate of decrease from the end of 2012 to the first quarter of 2013 came in higher. Average balances fell 4.8% from the final quarter's $5,122.

TransUnion's analysis points out that since the start of the Great Recession, in 2007, the credit card delinquency rate has fallen in the first quarter five out of six times, for an average decrease of 7.2%.

"This all implies to me that there are opportunities to lend," says Chaouki, with ratios hovering around all-time lows. Pointing to other TransUnion research, he notes that subprime lending has been increasing, including in the card area. Chaouki adds that lenders have been prudent in expanding on that front, attempting to grow without over-reaching.

Card originations rising

The quarterly report also looks at new card account originations, which TransUnion reviews one quarter in arrears due to lags in reporting.

This part of the company's analysis reflects the renewed interest in subprime, as well as other factors. Analysts considered the latest numbers in both the long and short terms.

In the fourth quarter 2012, new credit card account originations came in at 7,570,000, down 1.6% from the year earlier quarter. Of the 2012 tally, 28.14% were higher-risk accounts. This was down slightly from the year earlier (28.38%), but TransUnion points out it was higher than yearend 2010's 27.72%.

"The number of new credit cards entering the marketplace is still significantly greater than what we saw just a few years ago," says Ezra Becker, vice-president of research and consulting.