As increasing interest rates are expected to drive down mortgage-related refinancing, the credit card industry is poised to reel in some of the slack, analysts say - but will it be enough to pull "growth-for-growth's sake" players like Bank One's First USA from the trenches?
Not likely, said market specialists at Moody's Investors Service.
"At the margin, yes, this is going to mean some modest amounts of additional growth for the major issuers, but not huge," said David Fanger, vice president and senior credit officer at Moody's. "We're certainly not talking double-digit growth."
The acquisition of First USA was predicated on the idea that First USA would be an origination machine, drawing in 15% earnings growth each year, Fanger explained.
"That just wasn't possible, and that's not possible for most players in the credit card industry," he added.
Currently, Moody's estimates the growth of credit card debt for the past few years at about 5% annually, compared to the mid-90's, when debt was growing at numbers topping 20% per year.
"We suspect that the 5% figure will likely go up but we don't see it returning to 20%," Fanger said.
So will the asset-backed market see the effects of this growth, even if slight?
"For the players that are reliant upon the ABS market to finance their growth, yes," said Mark DiRienz, also a vice president and senior credit officer at Moody's.
"And so hence the monolines who really have no other financial alternatives to finance that growth, there would be some increase, but we don't expect dramatic growth from this phenomenon," he said.
More significant, he explained - at least from the perspective of the rating agency - is that payment rates are rising.
"[This] in our eyes is a good thing, because we're looking at how quickly investors would get out in event of a rapid amortization, and payment rate is the biggest element of that analysis," DiRienz said. "So the higher the payment rate, the faster the investor would get out, the lower their losses would be. And directly related to that, there's less likelihood of losses, because if people are paying off their balances, there's less of a balance to be charged off."
Ten years ago, debt on the average card was growing faster than charge volume, which implied that consumers were building their balances, DiRienz explained. However, in the most recent two-year to three-year period, debt has been growing at a much slower rate than charge volume.
There is a combination of factors leading to this pattern, including improved incomes and consolidation of debt elsewhere.
"But also the credit card has become a payment mechanism; people use it to buy groceries, whereas ten years ago you almost never would have used a credit card to buy groceries or to pay your taxes or your doctor bills," DiRienz said.
"There is growth in the use of the card as a payment vehicle, but as a debt vehicle it's almost stabilized," he added.