U.S. retail credit card chargeoffs are expected to surge in the coming months, according to Fitch Ratings latest Credit Card Index results.
Increased borrower defaults on store cards and lenders pulling back on credit overall, as well as a drop in consumer spending, are adding further pressure to the situation.
However, despite the worsening credit quality, negative retail card ABS rating actions are not expected in the near term because of current robust levels of excess spread that will cushion against Fitchs rising chargeoff expectations, said Mike Dean, a managing director at Fitch.
Excess spread levels for retail card portfolios remain robust and should insulate against any negative retail card ABS rating actions near term, the rating agency said. Excess spread on retail card trusts is helped by the relatively high portfolio yields on those portfolios, reflecting generally higher annual percentage rates charged to cardholders, Fitch said.
In the latest Fitch Retail Credit Card Index results, 60+ day delinquencies rose nearly 24% since August reaching 4.8% in the most recent period. Fitch expects chargeoffs to exceed 12% in 1H09 from current levels of 9.1%. Though in line with historical averages, the current chargeoff index is more than 40% above 2007 levels.
Fitchs Retail Credit Card index tracks more than $72 billion in principal receivables backing approximately $40 billion of retail or private label credit card ABS. The largest issuers in the index are Citibank Omni Master Trust and GE Private Label Master Trust.