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Global Credit Research - 25 Apr 2011
New York, April 25, 2011 -- After a brief pause in February, charge-offs on U.S.
credit cards resumed improved performance in March, falling to 7.35%
from 7.56% the month before, according to Moody's
Credit Card Index. Moody's expects the charge-off
rate to continue to decline throughout the spring.
"Our expectation that the charge-off rate index will break
below 7% in the second quarter at this point appears inevitable,"
said Jeffrey Hibbs, a Moody's Assistant Vice President and
Analyst. "However, as the effect of lower quality accounts
being purged from trust balances fades away, further improvement
will depend on employment trends and the quality of new underwriting."
The charge-off rate measures those credit card account balances
written off as uncollectible as an annualized percentage of total outstanding
Moody's confidence that the charge-off rate index will go
below 7% is largely based on the decline in credit card delinquencies
that has been taken place over the last several quarters. In March,
the delinquency rate fell for the seventeenth month in a row as it declined
23 basis points to 3.79%.
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
The early-stage delinquency rate, a key indicator of future
charge-off rates, fell below 1% for the first time
since the beginning of 2000, when Moody's began reliably tracking
this metric. The rate dropped four basis points in March to 0.98%.
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 March, the payment rate rebounded from February's seasonal
low, but the magnitude of the 256 basis point increase was somewhat
beyond Moody's expectations. The surge pushed the payment
rate index to an all-time monthly high of 21.77%.
Seasonal increases are normal in March because of obligors using tax refunds
to pay off their balances.
The payment rate measures the average amount of principal that cardholders
repay each month, as a percentage of total outstanding principal
The yield index in March moved higher by 39 basis points to 21.70%,
as it also followed its typical spring seasonal pattern of higher collections
of finance charges.
Yield is the annualized percentage of income, primarily finance
charges and fees, collected during the month as a percent of total
Increased yield and lower charge-offs pushed the excess spread
index to another all-time high in March at 11.51%.
Excess spread is a proxy for the profitability of a card program,
and generally represents the yield (i.e., income)
of a trust, less expenses such as charge-offs, coupon,
The report, "Moody's: Moody's: Credit
Card Charge-offs Improve in March" is available on moodys.com.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
Luisa De Gaetano
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's: U.S. credit card charge-offs improve in March
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