Prepare for a long climb

The pandemic’s economic upheaval is unprecedented, but previous downturns offer insights on how credit card portfolios might respond

In many ways, the economic impact of the COVID-19 pandemic bears little resemblance to the circumstances that produced the Great Recession of 2008-2009. Still, credit card managers can apply some lessons learned from the last downturn to short-term forecasts and planning to manage their portfolios.

Realistically, credit unions should prepare for lower revenue generation from their credit card portfolio for at least the next two years, cautions Tim Kolk, owner of TRK Advisors, Peterborough, New Hampshire. He cites a variety of factors behind this forecast: The prime rate is down 225 basis points from the end of 2018, which means yields have decreased 200 basis points on average. Even before the pandemic, credit unions’ charge-off rates had been creeping up for years, from 2.5% to the range of 3 to 3.5%.

“Credit risk is up. Yield is down. And depending on how quickly people rebound their spending and balances, that too will impact revenue,” Kolk says. “Credit card spending was nearing pre-COVID levels by the end of 2020, so interchange revenue may be back to close to where it was, but everybody’s balances are lower than they were before the pandemic. Ninety-five percent of credit unions had smaller credit card portfolios heading into Q3 2020.”


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