The Banking Executive Magazine - May 2021

Post-Pandemic Rebound a recent Federal Reserve survey and public comments by bank execu- tives, including from Bank of Amer- ica Corp. The change in posture is a stark dif- ference from last year when lenders halted most card offers and pulled back on credit limits, worried that skyrocketing unemployment would create major loan losses. THE LOSSES DID NOT HAPPEN. Instead, the U.S. government sent out stimulus checks, offered en- hanced jobless benefits and propped up small-business owners with for- givable loans. That allowed many credit-card reliant Americans to spend while also paying down bal- ances. Others leaned on higher housing prices to borrow cheaply against their homes rather than use plastic. Altogether that left card businesses in the lurch – still profitable, but pulling in less revenue. Card balances declined 14% during the pandemic, according to data from the Federal Reserve Bank of New York. The portion of accounts with revolving balances fell to 39.7% at the end of 2020 from 44.1% a year earlier, according to the American Bankers Association. Quarterly financial reports from major card lenders, including JPMor- gan Chase, Citigroup and Capital One, showcased those trends. But as pandemic lockdowns have started to ease – the return of indoor dining, travel restrictions lifted, concert an- nouncements, offices reopening and masks coming off – executives have expressed optimism about consumer spending and borrowing ahead. That is particularly true for rebound- ing card charges for travel and enter- tainment, which were down 80% at the beginning of the pandemic, Cap- ital One CEO Richard Fairbank told analysts last month. Capital One is encouraging the spending revival by gradually in- creasing credit limits, he said. "That represents an extra part of growth op- portunity," Fairbank said. 'MORE ENTICING' Even as balances fell, the number of card accounts increased during the last two quarters and a decline in credit lines stopped in the March quarter, according to the Fed data. The banks declined to comment on their plans beyond their public state- ments. What does it all mean for credit-card borrowers It largely depends on whether they will be able to maintain enough income to cover their spend- ing when they can go out to dinner and travel again. Any shortfalls would be sweet spots for banks. The average credit-card rate is over 16%, with the highest at 25%, ac- cording to CreditCards.com. The APRs have remained high, even as the Fed has kept overnight rates near zero and as most conventional mortgages cost a little above 3%. That helps banks earn twice the re- turn on assets with cards compared with other businesses. Now that the industry has a better feeling about the economy, banks will try to get customers to borrow more on cards, said Portales Partners analyst Charles Peabody. "They do have a good sense of consumer behavior," he said. "They will make it more entic- ing." ISSUE 149 MAY 2021 the BANKING EXECUTIVE 41