Fitch: U.S. Credit Card Delinquencies Fall to Six-Month Lows

NEW YORK – Performance of U.S. credit card ABS improved for the second straight month last month as chargeoffs dipped and delinquencies continued to improve, according to the latest Credit Card Index results from Fitch Ratings.

"U.S. consumer credit quality remains under considerable pressure, though the pace of deterioration has moderated in recent months," said Managing Director Michael Dean. "Defaults and delinquencies will exhibit some seasonal improvement but remain elevated in the coming months primarily due to the strained labor markets."

Fitch’s prime credit card chargeoff index declined 34 basis points (bps) to 10.93%. The result, which covers the March collection period, is still higher than the trailing 12-month average of 10.69%. A 234-bp decline in Bank of America’s credit card chargeoffs led to the reduction in the overall chargeoff index.

Late payments measured by Fitch’s 60+ day delinquency index dropped 17 bps to 4.27%, though they remain elevated compared to the long-term chargeoff index average of 3.05%. Early stage (30+ day) delinquencies also fell by 11 bps to 5.74%. When compared to the same period last year the early stage delinquency index declined by 38 bps (6%).

"Emerging signs that the consumer recovery may be in effect could translate to lower chargeoff rates later in the year although we need to realize sustained improvement in the labor markets," said Dean.

The beginnings of a consumer recovery coupled with seasonal improvements should help translate to continued stability for credit card ABS ratings. Also helping rating stability is the available credit enhancement, loss coverage multiples, and structural protections afforded investors. The Outlook for subordinate tranches, however, is still Negative.

Gross yield set another record high of 22.84% in March from 21.47% in the prior month. The results of discount options and repricing initiatives from different issuers continued to boost yield performance, which was up 6% from the prior month and 28% compared to the same period last year.

Monthly excess spread rose 107 bps to 8.89% in March as a result of an improvement in both the chargeoffs and the yield component. Consequently, the three-month average excess spread also rose by 18 bps to 7.67%, and is now 35% higher compared to the same period last year.

Monthly payment rate (MPR) increased by 56 bps to 19.35% in March. Seasonal benefits of tax refunds along with an improvement in the health of the U.S. consumer have led to a faster payment rate. It must be noted that MPR had experienced a drop in the previous month due to the fewer number of collection days during the February period. However, March’s MPR was at its second highest reading since June 2008, and is up 9% from the same period a year ago, showing that it has gained a firmer footing.

Also showing month-over-month improvements were U.S. retail credit card ABS chargeoffs, which declined 40 bps to 13.01% in March following record highs in February. March’s chargeoffs, however, were 17% higher than the same period a year ago.

Both late- and early-stage delinquencies also declined month-over-month. The 60+ day delinquency index fell 18 bps to 5.16%, while the 30+ day delinquency index fell 26 bps to 7.24%. When compared to the same period last year, late- and early-stage delinquencies were only 5% and 2% higher, respectively.

Gross yield fell 95 bps to 27.22% in March. Fitch expects yield to trend downwards as it has done in the past once consumers pay back their dues. March’s MPR rose by 76 bps to 14.59%, largely driven by the same day-count effect which has impacted the prime credit card MPR index. The MPR index also increased 6% from the same period last year.

The three-month average excess spread rose 104 bps to 9.44%, offering investors sufficient protection from further collateral deterioration.

Additional information is available at ‘www.fitchratings.com‘