New York, August 22, 2012 -- Securitized credit card charge-offs in the US increased to 4.56%
in July from 4.27% in June, according to Moody's
Credit Card Indices. One-time technical factors explain
the rise, says Moody's, and the charge-off rate
index will resume its downward trajectory next month, reaching about
4% by the end of the year.
A clear indication that charge-offs will continue to decline is
the further drop in the delinquency rate in July, which reached
a new low in the month of 2.36%, down from 2.40%
the previous month, according to Moody's in the new index
report "Credit Card Delinquencies Reach New Low in July; Charge-offs
Rise Slightly."
"Historically low delinquencies, as well as high payment rates,
underscore the exceptionally strong credit quality of securitized credit
card receivables today," says Jeffrey Hibbs, a Moody's
Assistant Vice President - Analyst. "Issuers charged
off the accounts of weaker cardholders at record levels during the recession,
and originators have added few receivables from new accounts to securitizations.
The result is that credit card securitizations today almost exclusively
comprise receivables of well-seasoned, high-quality
cardholder accounts that have continued strong performance despite a backdrop
of persistently high unemployment."
The 29 basis point rise in the charge-off rate index to 4.56%
in July was the result of increases Moody's had expected in the
charge-off rates of the Chase and Citibank trusts, which
collectively constitute approximately 45% of the overall index.
For the Chase trust in particular, this month's 87 basis point increase
was largely the result of a technical change to the trust sponsor's charge-off
recognition policy.
Each of the other four largest credit card trusts posted monthly declines
in their charge-off rates, and the trend of lower charge-offs
will continue next month and into the fourth quarter, says Moody's.
The charge-off rate measures those credit card account balances
written off as uncollectible as an annualized percentage of total outstanding
principal balance.
Although the delinquency rate dropped 4 basis points to 2.36%
in July, the early-stage component of delinquencies ticked
higher in the month to 0.66% from 0.65%.
July typically marks the seasonal low for early-stage delinquencies,
and an increase in early-stage delinquencies in the coming months
would suggest a return to seasonal behavior. It would also be a
leading indicator that charge-off rates were approaching a floor.
The delinquency rate measures the proportion of account balances for which
a monthly payment is more than 30 days late as a percent of total outstanding
principal balance. The early-stage delinquency rate measures
the proportion of account balances for which a monthly payment is between
30-59 days late as a percent of total outstanding principal balance.
Also in July the payment rate rose to 22.37% from 22.01%,
returning to the record high it set two months ago. The high payment
rate reflects the strong credit quality of the receivables compromising
trusts today, says Moody's.
The payment rate measures the average amount of principal that cardholders
repay each month as a percentage of the total outstanding principal balance.
In July the yield index increased to 18.49% from 18.29%
in June. Despite the increase, the yield index has remained
150-200 basis points below its year-ago level for the past
three months. Moody's says that expiration of most issuers'
principal discounting initiatives has led to the lower yields, as
these initiatives artificially boosted the yields.
Yield is the annualized percentage of income, primarily finance
charges and fees, collected during the month as a percent of total
loans. Discounting is the re-characterization of principal
collections as finance charge collections.
Excess spread decreased in July, to 11.12% from 11.25%
in June. Even with this month's decline, which was a direct
result of the higher charge- offs, the excess spread index
remains near historically high levels. Because of the end of discounting,
however, the excess spread index is slightly below the record-highs
of last year.
"Steady improvement in the charge-off rate since last year
continues to support trust excess spreads at healthy levels well above
historical norms," says Moody's Hibbs. "In
the coming months, as charge-offs continue to decline and
yields remain stable, the excess spread index will continue rising."
Excess spread is a measure of the overall performance of securitized pools
of credit card receivables.
Moody's subscribers may access the report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF295643.
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Moody's: US credit card charge-offs rise slightly in July, delinquencies reach new low