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U.S. Consumer Credit Continues to Improve: Fitch

September 9, 2013
credit card
U.S. consumer credit continued to rebound in August, according to Fitch Ratings.

The credit quality of the U.S. consumer continues to rebound as credit card ABS performance registered positive gains across the board this past month, according to the latest monthly index results from Fitch Ratings.

All major variables improved, including chargeoffs, delinquencies, yield, monthly payment rate (MPR) and excess spread. Additionally, several of these metrics managed to break record levels in August.

Fitch's 60+ Day Delinquency Index for August (covering the July collection period) registered yet another record low in dropping four basis points (bps). Late stage delinquencies, which measure the percentage of receivables associated with accounts that are delinquent in excess of 60 days, fell to 1.30 percent, a fifth consecutive monthly decline. Chargeoffs also improved for the fourth straight month and registered another 25 basis point (bps) drop to 3.37 percent. Current loss levels have plunged to levels not seen in over seven years and are 29 percent lower year-over-year.

Excess spread measures continue to gradually rise and are still reaping the benefits of improved loss performance and steady yields. Excess spread on a three-month average basis increased 37 bps in August to 12.32 percent, an all-time high. The robust excess spread levels provide ample cushion for the trusts and their investors.

Another record-breaker in August was MPR, which outperformed all other variables during the month. MPR increased almost 2 percent from last month to 26.05 percent, registering an all-time high after falling the previous month. Current MPR levels remain well above Fitch's long term index average of 16.86 percent.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $113 billion of prime credit card ABS backed by approximately $239 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.

Unlike the prime index, Fitch's Retail Credit Card Index results were mixed in August. Retail chargeoffs declined for the third consecutive month, dropping further 27 bps to 6.08 percent. Losses have declined 11.88 percent since the same period last year. On the other hand, late stage delinquencies have remained relatively flat and averaged 2.30 percent for the last three months, possibly indicating an end to declining levels of chargeoffs for the remainder of the year. Late payments have decreased 12.45 percent over the past year.

Both gross yield and excess spread worsened this month. Gross yield declined 34 bps month over month at around 27 percent, while three month average excess spread levels also fell 95 bps to 16.10 percent. Three month average excess spread has increased approximately 10 percent over the past year.

Fitch's Retail Credit Card index tracks more than $20 billion of retail or private label credit card ABS backed by approximately $32 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.

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Source: Copyright Professional Services Close - Up 2013

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