U.S. Credit Cards: Fairly Quiet on the Credit Front, for Now

This commentary reviews the U.S. credit card sector’s credit performance metrics for 2022 and the outlook for 2023.

Key highlights include:

• Credit performance metrics for the U.S. card issuers remained sound in 2022 but trended higher from the historic lows registered in 2021.

• Given the current trajectory, we expect the credit card industry's 30+ day delinquency rate to reach (or modestly exceed) pre-pandemic levels in the coming quarters and the net charge-off rate should mirror the same trend with a several months lag.

• Credit card issuers have tightened their underwriting standards for approving credit card applications since 2H22, a trend they expect to continue throughout this year.

• Current loan loss reserve levels mostly reflect a modestly deteriorating economic outlook including a slight increase in unemployment. A sharp revision of the economic outlook downward would result in sizeable reserve additions and weakened bottom line results for credit card issuers, which if protracted, would lead to negative pressure on ratings.

“In 2023, DBRS Morningstar expects credit metrics to soften further, approaching levels registered during the pre-pandemic period, and may potentially exceed those levels. Nevertheless, we expect such credit performance to remain manageable for U.S. credit card issuers and have no impact on the ratings,” said Yanni Koulouriotis, CFA, Vice President - Global FIG. “Beyond the anticipated normalization for the credit card sector's asset quality, a key downside risk to our expectations is a material and prolonged weakening in employment levels as a result of the Fed's tightening measures.”