Fitch: U.S. Credit Card Chargeoffs & Delinquencies Fall to Two-Year Lows

NEW YORK--(BUSINESS WIRE)--U.S. credit card ABS performance metrics crossed significant thresholds last month, with delinquencies and chargeoffs falling to levels not seen in more than two years, according to the latest Credit Card Performance Indices from Fitch Ratings.

'Despite high jobless claims and unemployment, U.S. consumers are whittling away their debt levels while credit quality measures continue to improve,' said Managing Director Michael Dean. 'Tighter underwriting and otherwise benign economic conditions will likely spur further improvements for credit card ABS performance metrics through the second half of 2011.'

Building on it's year-plus improving trend, Fitch's 60+ day delinquency index dropped below 3% for the first time in three years. The current level, which measures performance through March month end, reached 2.93% after declining 18 basis points from the prior month. This metric indicates the percentage of balances associated with borrowers who have missed two or more payments. As the economy struggled over the last three years, delinquencies were quick to rise and peaked at 4.54% in January 2010. Between 2004 and 2008, delinquencies hovered around 2.75%.

As expected from the improvement in delinquencies, chargeoffs also continued to decrease. For the first time in 26 months, this metric crossed the 8% mark with a 7.88% reading. This is the lowest observation since February 2009, after which chargeoffs increased steadily to highs in excess of 11% in early 2010.

With few changes to the prime rate and LIBOR curves, yield remained stable at 21.90%. With strong yields and improving loss metrics, excess spread generation has been robust. The one month average excess spread reached another all-time record high of 11.56%. The three-month average excess spread is a measure associated with certain triggers in credit card trust. Many trusts begin trapping excess spread rather than releasing it to the seller once the three month average excess spread falls below 4.5% to 4.0% in order to build subordination for the bottom most tranche. 'Continued improvement in losses led to three-month average excess spread hitting an all time record high last month,' said Senior Director Cynthia Ullrich.

Consumers are also paying back their card balances quickly. Fitch's monthly payment rate index approached record highs reaching 21.72%. Fitch expects payments rates will remain high as more consumers transact and make on time payments.

Fitch's Prime Credit Card index was established in 1991 and tracks $164 billion of prime credit card ABS. The index is primarily comprised of general purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, etc.

Fitch's retail credit card index exhibited similar trends, with gross yield remaining strong at 26.40% and monthly payment rates reaching 15.66%. The retail index also eclipsed meaningful hurdles with regard to credit quality, with 60+ day delinquencies falling below 4% for the first time since August 2008. The current level is 3.90% which is still elevated compared to pre-recessionary levels of about 3.50% to 3.75%. Fitch's retail chargeoffs index remains above 10%, at 10.42%, but has shown steady improvement over the last six months since peaking at 13.41% in March 2010.

Fitch's Retail Credit Card index tracks $32 billion of retail or private label credit card ABS. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., GE Money Bank 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.

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