Jan 10 - U.S. credit card ABS finished 2012 on a strong note with chargeoffs shattering another record low, according to the latest index results from Fitch Ratings.
Prime credit card chargeoffs dipped below 4% for the first time since 2006, falling to 3.98% in December. The 18 basis point (bp) decline in chargeoffs is a continued result of declining bankruptcy filings delinquencies throughout 2012 which have stabilized somewhat in the past few months. Chargeoffs have declined 29.43% since the end of 2011.
Late stage delinquencies increased three basis points (bps) in December to 1.73%. Despite the small increase, late payments remained relatively steady around the 1.70% mark for the past four months. This is a sign that delinquencies are stabilizing and could be a harbinger of chargeoffs plateauing in the coming months. In 2012, Fitch’s 60+ Day Delinquency Index declined by almost 25% year-over-year.
Gross yield slipped slightly this month by 19 bps to 18.18%. This is in line with the average for 2012 of 18.19% and not far off the historical average of 18.56%. On the whole, gross yield has remained fairly stable this year, only decreasing 3.45% since the end of 2011. Despite a decline in gross yield, three-month average excess spread has reached an all-time high of 11.51%, surpassing the previous high of 11.38% last month. The increase in excess spread is being driven by the decline in chargeoffs.
Monthly payment rate (MPR) is down slightly to 22.27% from 22.43% last month and the historic high of 22.99% in September 2012. This is above the historical average of 19.30%.
September 2012 marked the first time total ABS outstandings had increased since December 2011. However since that point the balance has declined each month and is now under the $100 billion mark for the first time since December 1995. Outstandings have declined by 25.85% over the past year as ABS notes continue to mature and are not replaced by new issuance.
Fitch’s Prime Credit Card index was established in 1991 and tracks more than $99 billion of prime credit card ABS backed by approximately $263 billion of principal receivables. The index is primarily comprised of general purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, etc.
With the exception of chargeoffs, performance of Fitch’s Retail Credit Card Index improved. Gross yield rose by 2.36% to 26.50% this month after a dip to 25.89% last month. Overall, gross yield has increased 3.23% in the past year. MPR also rebounded this month after a temporary two month slip, improving 72 bps to 15.81%.
Chargeoffs increased 4.69% to 6.69% after dropping almost 20% over the course of 2012. Chargeoffs are still well below the historical average of 9.09%. 60+ day delinquencies have been stabilizing around 2.70% for the past seven months after peaking in early 2009.
Fitch’s Retail Credit Card index tracks more than $27 billion of retail or private label credit card ABS backed by approximately $50 billion of principal receivables. 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.
ABS ratings on both prime and retail credit card trusts are expected to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors.