Wednesday, August 11, 2010

Credit Card Data

It is six months since we last examined the credit card data published by the Central Bank.  In most cases the conclusions we drew then are still valid.
If we first look at the headline figure of the annual change in total credit card indebtedness. 
Credit Card Indebtedness
Up until the beginning of 2007 the annual growth rate was consistently above 15%.  Since then it quickly collapsed and has oscillated around zero for the past 16 months.  The total credit card debt for June 2010 (€2,995 million) is less than the total debt for June 2008 (€3,001 million). 
There are also fewer issued credit cards being used.  Towards the end of 2008 there were nearly 2.4 million cards issued.  Now there are less than 2.3 million.  All of this drop has been in personal cards rather than business cards.  See graph here.
Looking in more detail at the actual amount of debt on our credit cards, and two of the key drivers of this statistic, monthly credit card purchases and monthly credit card repayments.
Credit Card Monthlies
We can see that after increasing consistently through most of the decade, the total level of debt levelled off in early 2008 at around €3 billion, while the monthly spending and monthly repayment lines have been trending down for the past 24 months.  The following graph isolates the new spending and repayments lines.
Spending and Repayments
If we further isolate new spending on credit cards as a barometer of consumer activity.   I think this is a better measure of consumer activity than the more cited measure of total indebtedness, which is also influenced by interest and charges as we will see below.  The following chart shows the annual change new spending on credit cards each month.
New Spending on Personal Cards
The contraction is new spending on credit cards has not ended.  Although the annual decreases have risen from the lows seen in early 2009, the amount of new spending on credit cards is still declining.  New spending in June 2010 was 8.2% below the level of new spending in June 2009.  The bite of the recession has not passed yet.
As seen above the total amount of new spending has begun to drift below the total amount of monthly repayments.  In fact for 24 of the past 30 months monthly repayments have been greater than new spending.
Spending less Repayments
The peaks in this series occur in December of each year when new credit card spending is highest.  However, even with repayments exceeding new spending we have seen that the total level of indebtedness has been largely stable at around €3,000 million.  In fact, over the past 30 months back to January 2008, repayments have exceeded new spending by €956 million.  At the same time the total level of indebtedness has RISEN by €62 million.
So even though more has been paid off credit cards than has been spent on them the total amount owed has increased.  This is because spending and payments alone do not account for credit card balances - the extra amount is accumulated interest (and other charges).
The Central Bank do not give data on the amount of interest added to credit card balances but we can infer it given that the monthly change is approximately spending plus interest minus payment. The change may also be the result of some non-interest charges and duties. Looking at the approximate monthly interest payments and charges.
Interest and Charges
The peaks that approach €80 million correspond to April of each year when the annual government duty of €30 (previously €40) on credit cards is due.   Since January 2008 about €960 million has been added to credit card balances through interest and charges.
If we look at the effect this has on the average debit balance of personal credit cards.
Balance on Personal Cards
The average credit card balance has not been decreasing.  In fact there has been no month in which the annual change in personal credit card balances has been negative.  See graph here
Our credit card balances are increasing not because we are spending more than we are paying (we do the opposite) but because of the interest on outstanding balances. Although we generally pay the equivalent of our monthly spend each month we do not pay down enough to cover the accumulating interest and reduce the outstanding balances.

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