Saturday, February 5, 2011

Credit Cards in 2010

The release last week of the Central Bank’s Money and Banking Statistics allows us to update an infrequent analysis of credit card statistics in Ireland.

The headline figure of total credit debt was 6.3% lower in December 2010 than at the same point of 2009. *

* As we will see below there is an anomaly in the December 2010 data which may affect the accelerated rate of decline seen in December.  Somebody may be able to offer an explanation.  See next *.

[UPDATE: I have an explanation! See bottom of post]

Credit Card Indebtedness

Total credit card debt has not shown any significant annual increase since the start of 2009, but it was in the latter half of 2010 that it actually began to fall.  The total number of credit card in issue peaked in January 2009 at 2.38 million.  Since then it has fallen and stood at 2.23 million in December 2010. 

Credit Card Issued

Nearly 93% of credit cards issued are personal cards and all the fall of 150,000 has occurred here.  There are 156,000 business credit cards in issue in December 2010, only slightly down on the 158,000 that were in issue in December 2008.  Here are the monthly changes in the number of personal credit cards in issue since January 2007.  The largest monthly drop of 36,0000 occurred in the month just past.  We cannot tell what proportion of these are cancelled by the consumer or written down by the lender.

Personal Credit Card Issued Change

We will now looking in more detail at the actual amount of debt on these credit cards, and two of the key drivers of this statistic, monthly credit card purchases and monthly credit card repayments.

Credit Card Monthlies

The total balance outstanding on credit cards in December was €2.9 billion, which is pretty much the level it stood at back in January 2008.  After sustained growth from 2002 to 2007, our total credit card debt has been largely stable over the past three years.

When we look at the monthly activities on credit cards we see that these have been trending down in recent years.  In 2010, the average monthly spend on credit card was €939 million.  Back in 2007, the equivalent figure was €1,047 million.  Our credit card balances mightn’t be coming down (until recently) but there has been a reduction in spending on credit cards.  This means that the ratio of outstanding debt to new expenditure has been getting larger and has increased from an average of 2.5 five years ago to 3.5 now.

Debt-Expenditure Ratio

This graph isolates the monthly new spending and repayments from the graph above that also included total debt.  The drop in monthly credit card activity is clearly evident. 

Spending and Repayments

The two lines overlap extensively, but it is interesting to note that the quartic trend line for repayments has been above the trend line for new spending since the end of 2007.  We will return to this anon but here is the annual change in new monthly spending.

New Spending on Personal Cards

The most severe drops were recorded in 2009, but there was no month in 2010 when spending exceeded the equivalent amount from a year before.   Last month new spending on personal credit cards was €824 million.  Twelve months previously it had been €929 million, while in December 2007 it was €1,136 million (which was to be its zenith).  The fall over that three year period is 27.4%.

If we return to the monthly spending and repayment lines but isolate them for the past three years. 

Credit Card Monthlies since 2008

For 29 of the past 36 months repayments on credit cards have exceeded new spending on personal cards.   Here is the gap between spending and repayments back to 2002

Spending less Repayments

In the last three years total repayments on credit cards have exceeded total new spending by €1,091 million.  Over the same period, as we saw above, the aggregate balances on credits cards have declined from €2,938 million to €2,911 million – a fall of only €27 million.  So what happened to the other €1billion and change?

The reason for this difference 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 new spending plus interest added minus monthly repayment. The change may also be the result of some non-interest charges and duties. Looking at the approximate monthly interest payments and charges since 2005. *

*This graph also shows the anomaly with the December 2010 numbers.  The numbers suggest that interest and charges added to balances during the month were negative (-€48 million).  Per the data, there was €963 million of new spending on credit cards in December.  During the month some €939 million of repayments were made, €24 million less than spending.  However, that data also say that even though spending was greater than repayments, balances actually fell by €24 million during the month.  Is there any way of explaining this? Repayment of interest or other overcharges?

Interest and Charges

This accounts for the €1 billion that has been ‘repaid’ off credit cards yet the total debt has hardly declined at all.  The leaks occur in April of each year when the annual government duty on credit cards is charged which could have brought in about €150 million over the past three years.  Since January 2008 €1,011 million has been added to credit card balances through interest and charges and it appears that about €850 million of this is interest.

With balances averaging €3,000 million over the period it is pretty easy to infer that the average interest rate been charged on this money is in the region of 10%.  Credit card debt is expensive debt.  If we look at the average balance on personal credit cards we that even though repayments have exceeded new spending for most of the past three years the average balance has hardly moved at all.

Balance on Personal Cards

In January 2008 the average balance on personal credit cards was €1,295.  At the end of 2010 the figure was €1,340.  As before our conclusion remains the same:

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.

UPDATE:  The reason for the strange patterns seen in the December 2010 figures can be attributed to the departure of Bank of Scotland (Ireland) from the Irish market.  Their outstanding products in December were transferred to Bank of Scotland (UK) and no longer appear in the Central Bank’s Credit Card statistics.  With this in mind, we will have to be careful about drawing inferences of changes in the credit card market based  on the December figures.


  1. Seamus, I don't think that the HBOS figures actually make much of a difference to the trends you have discussed above. Any transfers to the parent were purely residual as personal customers had already been advised of the closure of the Irish operation & told to transfer their business elsewhere long ago.

    Spending on personal cards fell by 11.3% against December 2009 and any minor technical changes because of HBOS does not influence that. Credit card spending is not restricted by weather, indeed bad weather is a boon for internet shopping, for which a credit card is a pre-requisite. The bad weather should be reflected by greater use of credit cards, not less as people used the internet to buy presents instead of venturing from their homes

    I would suggest that the switch to 31/12 account year ends by the two main CC issuers AIB & BofI may have more to do with the decline in numbers as business units looked to make appropriate bad debt provisions. It would be interesting to know how many of the cards were cancelled by the issuer or voluntarily handed back. Also how much outstanding debt was written off or converted or “consolidated” into loans on cancellation. For example looking at the accounts of some Credit Unions for 2010, consolidation loans accounted for a reasonable amount of new business written.

    Personal spending is back to the levels of Dec 2004 and I would feel is likely to decline further during 2011. The balance outstanding (owed) is now “just” 3.37 times the monthly expenditure. But indebtedness as a multiple of spending and also in real terms is falling very slowly. This would seem to suggest that those who managed their cards efficiently and pay off their balances have cut back the most on their use with the others desperately trying to manage their debts and living costs.

    Credit cards are used by many Irish people for their regular out of pocket purchases or "Froopp"(Frequent regular out of pocket purchases). As such purchases on credit cards represent a large proportion of personal expenditure. A drop in credit card activity represents a decline in overall consumer activity. A decline in credit card numbers represents a serious decline in the confidence levels of both the issuing banks and consumers for the future. It also reflects the closing off of access to short-term borrowing for a very large number of people.

    Recent actions by MBNA forcing customers who do not clear their bills to make substantially higher minimum payments in the future will continue those trends.

    All of these points would seem to suggest that consumer spending in 2011 is going to be very weak indeed.

    A minor technical point. I would suggest that the payments made in a particular month should be compared to the previous month's spending as that is the reference point for the payment.

    Might I also (respectfully) suggest that you post some of these excellent commentaries on other sites such as Progressive Economy. They deserve a wider audience. A number of those contributing there have made regular references to your work.

  2. Credit card is a type of unsecured financing. The consumer uses the card to purchase which is considered as debt. The flow is like this. The bank pays in advance before we could even purchase or buy something with our card. So, if we do not pay at the right time then the bank would have a deficit or unbalanced accounting on their part. Then, because of that we pay not only for the item price purchased but also for the interest that we agree to pay if it was overdue. It is unsecured because we are granted to borrow without collaterals to secure as payment for the bank if we would not have the capacity to pay anymore.