Fitch's US Credit Card Index Shows Chargeoffs Up to a Record 8.41%
Credit card delinquencies and chargeoffs breached record levels last month as consumer credit quality deteriorated further in the worsening economic environment according to the latest Fitch Credit Card Index results. Despite the results, portfolio yields increased and excess spread levels remained robust, as remedial actions by credit card issuers are providing investors with a cushion against future losses and early amortization.
"While we are in uncharted territory for credit card losses, issuers' proactive measures have offset the rapid run up in chargeoffs and helped preserve excess spread margins," said Michael Dean Managing Director. "Those actions and available structural protections have limited the likelihood of widespread negative rating actions in the sector at this time."
As anticipated, chargeoffs rose sharply following steep increases in delinquencies in the prior two periods. Fitch expects chargeoffs to trend higher in the coming months and approach 10% by this time next year. Under that scenario, available credit enhancement and loss multiples are still expected to support current ratings at the senior levels for most trusts. The outlook for subordinate tranches, however, is becoming increasingly negative particularly if recent delinquency trends hold.
For the February collection period, Fitch's Chargeoff Index rose 101 basis points (bps) to a record 8.41% eclipsing the prior mark of 7.52% reached in November 2005. Chargeoffs have increased 33% in the last six months and are up 47% year over year.
"Chargeoffs are being amplified by declining asset pools as issuers continue to tighten underwriting at the same time overall consumer spending slows," said Cynthia Ullrich Senior Director.
Fitch's Delinquency Index rose 29 bps to 4.33%, the third consecutive record result. The delinquency index, which measures the percentage of credit card receivables that were reported more than 60 days past due, has increased 36% in the last six months.
Portfolio yield jumped 83 bps to 16.83% as a result of issuer re-pricing initiatives taking effect in the latest period. Combined with slightly lower funding costs the increase in gross yield helped offset the higher chargeoffs. As a result, Fitch's Excess Spread Index fell only 6 bps to 5.74%.
Fitch's Monthly Payment Rate Index declined to 15.78% from 17.15%. The drop was driven by seasonal factors as well as fundamental changes in cardholder payment trends.
Fitch established its Prime Credit Card Indexes in 1991 in order to measure the aggregate performance of receivables used to collateralize credit card asset-backed securities. The index tracks the performance of $276 billion in Credit Card ABS bonds.
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