Synchrony Financial said it expects both credit card loan volumes and bad credit to increase in the second half of the year, assuming the pandemic recedes and an economic recovery follows.
The Stamford, Connecticut company said on Friday it expects consumer spending to rise and fewer customers to pay off existing debt, which could spur growth in third and fourth loan receivables. quarters, but could also result in more bitter loans. American consumers are spending less and repaying more of their debts as their leisure options shrink.
“We are encouraged by recent developments, including the recently adopted stimulus, the stimulus proposed ‘by the Biden administration’ and the nationwide rollout of a vaccine,” CFO Brian Wenzel said on the earnings call. of the society. “We believe these factors will have a positive impact and should provide momentum as we move forward into 2021.”
Like other major credit card issuers, Synchrony, with assets of $ 95.9 billion, enjoyed excellent credit performance in the fourth quarter, although the company had to share more revenue. than it usually does with partner merchants.
Net income increased 1% to $ 738 million as a lower allowance for bad debt more than offset a 9.2% decline in net interest income. Loan receivables fell 6% to $ 81.9 billion.
“Their profitability is strong, but growth has not accelerated,” said Moshe Orenbuch, analyst at Credit Suisse.
The bulk of Synchrony’s business comes from branded cards developed with retailers such as Amazon, Sam’s Club, and Verizon. The company has different agreements with different business partners, details of which are usually not made public.
During the pandemic, the percentage of Synchrony’s loans gone bad plunged, which is usually an unadulterated advantage in the card industry. But for Synchrony, which announced a write-off rate of 3.16% in the fourth quarter, down from 5.15% in the same period a year earlier, exceptionally strong credit quality had a setback.
Synchrony shared 28.6% of its net interest income in the quarter with its business partners, up from 22.4% in the fourth quarter of 2019, according to information released on Friday. The increase is in part due to improved loan performance for the company, Wenzel said.
John Hecht, analyst at Jefferies, wrote in a research note that he expects revenue sharing with retailers to decline as the percentage of loans gone bad increases to a more normal level.
Synchrony expects late payment rates to increase in the coming months before peaking in the third quarter. Only 3.07% of its loan receivables were at least 30 days past due at the end of the fourth quarter, down from 4.44% a year earlier.
The company also said it expects consumer spending trends in the first half of the year to remain consistent with those in the second half of 2020. Synchrony customer purchase volumes fell 1 percent from a year earlier. year over year in the fourth quarter.