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
'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
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%
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
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.
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