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Building on an extended run in improving delinquency rates, credit card defaults declined last month to a level not seen since mid-2008, according to the latest Credit Card Index results from Fitch Ratings. The results, which cover the September collection period, indicate credit card ABS portfolio performance could improve further in the coming months.
'Although still high on a historical basis, credit card defaults have been relatively stable albeit over the last few months while delinquencies have improved considerably,' said Managing Director Michael Dean. 'To the extent we some improvement in the employment situation, particularly on the new jobless claims front, we could foresee further improvements chargeoffs.'
During the month, late stage delinquencies improved for the ninth consecutive month. Fitch's 60+ day delinquency index decreased by a marginal six basis points (bps), while reaching a new two-year low at 3.50%. Early stage delinquencies remained flat for the month, with 30+ day delinquencies improving by only one basis point to 4.61%. When compared to the same period last year, late stage delinquencies were 72 bps lower and represent a 17% decline.
After a one month temporary uptick in August, Fitch's Prime Credit Card Chargeoff Index once again fell below the 10% mark, surging 114 bps this month to 9.22%. The decline of defaults in September represents a historic 18 month low and is 14% lower year-over-year. The larger trusts that make up the majority of the index, including Bank of America, Chase, Citibank and Discover, all reported lower default rates for the month.
Senior credit card ABS ratings are expected to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors. The outlook for subordinate tranches remains moderately more negative.
Meanwhile, gross yield retracted in September with a 74 bps decrease and dipped to 21.92%. Despite the decline, yield remained 13% higher year over year. However, Fitch expects performance to decline by up to 10% in the coming months as a result of regulatory and legislative changes.
Despite the decline of gross yield in September, monthly excess spread improved as it was offset by a healthier chargeoff rate. Excess spread increased another 40 bps to 9.95% and is 66% higher during the same period in 2009. Accordingly, the three-month average excess spread further improved another 26 bps during the month to 9.81% while posting another historic high. Compared to last year, three month excess is 71% higher.
After a four consecutive month improvement, monthly payment rate (MPR) performance slowed slightly in September, registering a small decrease of 15 bps to 19.65%. Despite the drop, MPR still represented a 9% increase compared to the same period last year and is at the third highest level since the beginning of 2008.
'Monthly payment rates have been resilient despite the lack of credit availability in the wake of the mortgage crisis,' said Senior Director Cynthia Ullrich. 'Though consumers are spending less, the percentage of cardholders who are charging rather than revolving has not changed significantly.'
Fitch's Prime Credit Card index was established in 1991 and tracks more than $200 billion of prime credit card ABS backed by approximately $287 billion of principal receivables. The index is primarily comprised of general purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, HSBC, etc.
Performance in retail credit card ABS was mixed as well for the September collection period, with an improvement in chargeoffs despite an increase in delinquencies. Early and late stage delinquencies both increased for the month while defaults rebounded after an increase the prior month. Delinquencies of 60 days or more for September remained relatively stable and increased marginally four bps to 4.69%, while delinquencies of 30 days or more worsened 20 bps to 6.81%. Chargeoffs improved with a 37 bps increase to 11.54%.
Gross yield slipped again, declining 25 bps to 25.97% after a surge the previous month. On the other hand, MPR performance fared better, improving 57 bps to 14.38%.
Monthly excess spread improved for the third consecutive month with a small increase of seven bps to 9.55%. Similarly, the three-month average excess spread posted a bigger gain of 71 bps to 9.11%. This level is approximately 13% higher compared to the same period last year.
Fitch's Retail Credit Card index tracks more than $41 billion of retail or private label credit card ABS backed by approximately $53 billion of principal receivables. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., GE Money Bank, HSBC Bank Nevada, N.A. and World Financial Network National Bank. More than 165 retailers are incorporated including Wal-Mart, Sears, Home Depot, Federated, Loews, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.
Additional information is available at 'www.fitchratings.com'