August 20, 2010
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News: Citi's Strategies Paying Off
Citibank continues to struggle with credit card defaults in spite of its efforts to improve its image among consumers. The company has changed many of its lending strategies and has targeted the prime credit card market by becoming more selective. They have however, aggressively targeted these individuals and have had some success. If the company is wishes to really be successful, it will have to come up with a rewards program that offers more benefits to cardholders. Currently their program offers a variety of merchandise which can be purchased at reduce cost when the cardholder applies rewards dollars. Unfortunately, most of the items are useful to the average credit cardholder making Citi's rewards program less attractive than its competitors.
Nevertheless, the bank did report that July credit card defaults were down, most due to an accounting error from previous months, to 9.1 percent. The lender reported that an accounting error caused the bank to count its card write-offs twice. When Citi discovered the accounting error, they recalculated the write-off rates for the entire 2010 calendar year. Originally, Citi had reported credit card defaults to be 11.46 percent in June, but after the recalculation, the actual figure came to 10.72 percent; a significant difference in terms of the bank's overall accounts receivables balance.
Citibank also reported that credit card delinquencies of 30 days or more fell as well during July to 8.32 percent, down from slightly from June's reported delinquencies of 8.58 percent. These delinquencies are important to note because early stage delinquencies are an indicator of future card defaults. Citibank is not alone in this boat; the industry as a whole has reached all time highs in card delinquencies and defaults. The national average write-off rate has been nearly 10 percent; up from an average of 3.8 percent just three years ago. Although the rate has begun to trend downward, analysts say that until the unemployment rate begins to fall, the country will continue its fight against a struggling economy. Meanwhile, Citi continues to work on its business strategies which appear to be paying off.