NEW YORK Nov 23 Moody's Investors Service expects recent declines in credit card charge-offs to reverse course in the coming year as delinquencies climb higher and drives charge-offs to their peaks by mid-2010.
The charge-off rate measures those credit card account balances written off as uncollectable by credit card firms.
Moody's October credit card index showed a drop to 10.04 percent in the charge-off rate, below the 11.49 percent all-time high set in August.
October's decline benefited from a large but technically driven improvement in Citibank's charge-off rate, said Moody's. It noted a change in bank policy that increased the amount of time between an account holder going bankrupt and when the account is deemed to be a charge-off.
The rating agency predicts charge-offs will peak at between 11 percent and 13 percent by next year's first half.
"This trend in rising delinquencies will lead to increases in the industrywide charge-off rate," said William Black, senior vice president at Moody's.
Moody's delinquency rate index increased for the third consecutive month in October, with increases driven by the rates for 60-day and 90-day delinquencies. Early-stage delinquencies were essentially unchanged from September.
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 for the past three months is running 14 percent higher than levels from the same period last year. Moody's continues to expect the early-stage delinquency rates to creep higher over the next several months, leading to a higher charge-off rate in the first half of 2010.
The index payment rate, the average amount of principal paid by cardholder each month, rebounded to 17.31 in October, after two consecutive months of decline. Longer term, Moody's expects payment rates to continue to weaken into 2010. (Editing by Kenneth Barry) ((Reuters Messaging: email@example.com))