Fitch: Delinquencies Hit 17-Month Low for U.S. Credit Card ABS

NEW YORK — Performance of U.S. credit card ABS remains relatively stable as late stage delinquencies continue to improve, according to the latest Credit Card Index results from Fitch Ratings.

"Seasonal factors are influencing the improvement in delinquencies and could benefit chargeoffs in the coming months," said Managing Director Michael Dean. However, "Employment trends remain vital to any meaningful and sustained improvement taking hold."

Late payments improved for the fifth consecutive month. For the May collection period, Fitch’s 60+ day delinquency index fell another 17 basis points (bps) to 4.01%, setting a 17-month low. Early stage delinquencies also improved, as 30+ day delinquencies decreasing for the third straight month by 26 bps to 5.27%. Although 60+ day delinquencies are still elevated, they are trending below the 2009 average of 4.33%. A continued and measurable decline in delinquencies, which are an indicator of future losses, point to lower chargeoffs in the coming months.

Fitch’s prime credit card chargeoff index registered a slight increase of three bps to 11.13%. Despite the slight uptick, chargeoffs were only 7% above year ago levels. Contributing to May’s higher chargeoff level was a 61 bp increase of defaults within the BA Credit Card Trust; while almost all other issuers exhibited lower rates.

"Given their resiliency in the face of higher chargeoffs and delinquencies, ratings on senior credit card ABS should remain stable," said Senior Director Cynthia Ullrich. "The Outlook for subordinate tranches remains Negative."

Gross yield continued on its upward trajectory once again after a temporary slip. Gross yield for May was 22.20%, its second highest level ever. The results of discount option and repricing initiatives from different issuers continue to boost yield performance, which was up 26% compared to the same period last year. However, Fitch expects gross yield to decline by up to 10% in the coming months due to regulatory and legislative changes.

The monthly improvement in gross yield also drove excess spread higher for May. Monthly excess spread increased 58 bps to 8.59%, while the three-month average increased 29 basis to a four year high of 8.57%. Excess spread has improved for the fourth consecutive month and is 77% higher than the same period last year.

Monthly payment rate (MPR) performance also fared better this month, with a marginal improvement of 21 bps to 19.02%, which represents an 11% increase compared to the same period last year. Consistent with seasonal patterns, the slight rise is due to a higher number of collection days during the May collection period.

Fitch’s Prime Credit Card index was established in 1991 and tracks more than $231 billion of prime credit card ABS backed by approximately $306 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.

Improvement in both delinquency and chargeoff trends also continued for retail credit card ABS. Chargeoff rates remained stable for the month while late stage delinquencies fell for the fourth consecutive month. Chargeoffs improved by one basis point to 13.22%, and remains approximately 4.5% above year ago levels. Late stage delinquencies in May improved another 13 bps to 4.80%. Early stage delinquencies, however, were up three bps to 6.87%.

Gross yield increased 42 bps to 26.08% following a pattern similar to the prime index. MPR performance, however, was down 65 bps to 13.96% after showing three consecutive months of improvement.

Monthly excess spread was up 137 bps to 8.66%, while the three month average excess spread fell for the second consecutive month to 8.63%. Excess spread, however, remained flat year over year.

Fitch’s Retail Credit Card index tracks more than $40 billion of retail or private label credit card ABS backed by approximately $55 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