The FINANCIAL — New York-10 October 2011: U.S. credit card ABS collateral performance improved yet again last month, though escalating talk of a double-dip recession is raising the question 'For how much longer?', according to the latest credit card index results from Fitch Ratings.
'Credit quality has improved significantly for credit cards and were seeing the results of that continue to play out in ABS performance,' said Managing Director Michael Dean. 'That said, the pace of improvement is showing signs of leveling off and we expect to see stabilizing trends going forward.'
Credit card ABS performance has improved significantly over the past year. Losses have retreated from persistently high levels while excess spread has strengthened to twice the pre-recession average. 'The current dynamics are prompting investors to question how much lower these metrics can go with the threat of a double dip recession looming in the background,' said Senior Director Cynthia Ullrich.
Delinquencies have settled at levels last seen in 2006, after the late buckets were washed out by consumers' rush to file before the 2005 bankruptcy law change. Additionally, late payments and defaults touched five- and three-year lows. As far as losses go, the situation is excellent, with both losses and delinquencies at multi-year lows.
Fitch's Delinquency Index for September, which measures performance through August 31, is 2.30%, a 35% drop-off compared to last year. This metric represents the receivables associated with accounts more than 60 days delinquent expressed as a percentage of total receivables. Losses fell nine basis points (bps) to 6.32% from 6.41%. Since the inception of the Fitch index in 1991, losses have averaged 6% and experienced a peak of 11.52% in September 2009.
Three-month average excess spread has hit yet another record high of 11.38%. This marks the 10th straight month of double-digit readings. Compared to an average of 5.82% since exception, current levels are remarkably strong. 'Low interest rates and receding losses are perpetuating record highs in excess spread,' said Director Herman Poon.
Monthly payment rate performance bounced back up to set a new record at 21.88%, well above the long term index average of 16.3%. Gross yield remains strong at 20.03%.
Fitch's Prime Credit Card index was established in 1991 and tracks more than $144 billion of prime credit card ABS backed by approximately $252 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, etc.
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