Fitch Ratings' Prime Credit Card Chargeoff Index for January marked the fourth straight month-over-month improvement, decreasing another 62 basis points (bps) to 8.37% during the month.
The decline represents close to a two-year low and chargeoffs are now down 18% year over year. The largest trusts that make up the majority of the index, including Bank of America, Capital One, Chase, Citibank, and Discover, each reported sizeable monthly improvements in default rates.
All variables, including chargeoffs, delinquencies, yield, monthly payment rate (MPR) and excess spread all improved again during the December collection period. Credit card defaults dropped to a 23-month low, while delinquencies fell to a level not seen in 27 months. The results bode well for the coming months.
"Lower chargeoffs are likely throughout the rest of the first quarter," said managing director Michael Dean. That said, "Chargeoffs are still above historical averages and will likely remain at elevated levels until we see more meaningful improvement on the labor front."
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.
Late stage delinquencies trended lower for the 12-straight month period. "Late stage delinquencies fell to an historic 27-month low, which likely sets the stage for continued loss improvement in the coming months," said director Herman Poon.
Fitch’s 60+ day delinquency index decreased another 14 bps to 3.23%. Early stage delinquencies also declined, with 30+ day delinquencies decreasing 36 bps to 4.18% after a temporary uptick the prior month. For the month, all trusts that make up Fitch’s index reported lower delinquency rates.
Gross yield improved for the second consecutive month after a momentary slip last year while maintaining the sixth highest level ever. Gross yield increased to 21.98%, a 15 bps gain and remains 18% higher than the historical average at inception of 18.67%.
Excess spread also followed the improvement of yield and chargeoffs continue its positive momentum. According to Fitch, monthly excess spread increased another 71 bps to 10.82%, while the three month average improves by 26 bps to 10.26%. This marks another all time high and is 36% higher year over year.