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Fitch: Improved performance of credit card ABS may be short-lived

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The performance of U.S. credit card securitizations is continuing to improve, according to Fitch Ratings, but the asset class's ongoing health will depend significantly on what emerges from political squabbles in Washington, D.C.

In a recent note, Fitch says that following improvements in August, U.S. prime and retail credit card asset-backed Securities (ABS) "performance maintained momentum as of the September 2020 distribution date.

"Fitch's Prime and Retail Indices continued to exhibit strong performance with limited notable negative movements in major metrics thus far," the note says.

That is despite the elevated unemployment rate, which is much improved from earlier in the pandemic but still at an historically high 7.9% in September. The rating agency notes that many credit-card issuers offered deferral programs that shielded securitization trusts from the immediate losses that occurred at the at the onset of pandemic.

"U.S. credit card ABS performance may still be adversely impacted in the upcoming months as consumers leave deferral programs and roll into possible late-stage delinquency," Fitch says.

In addition, Fitch notes, "As the future stimulus bill is still up for negotiation, U.S. credit card trusts may be increasingly exposed to consumers experiencing financial hardship who were previously supported by the Coronavirus Aid, Relief, and Economic Security (CARES) Act."

An unsuccessful or delayed additional round of stimulus could prove especially problematic for credit-card ABS. Fitch notes that its Retail Credit Card Charge-off Index is at its lowest rate in nearly 14 years, at 5.54%, down from a pandemic-period peak of 7.32% in April. However, the improved charge-off rates have been driven in part by deferral programs issuers offered consumers. Similarly, retail 60+ day delinquencies were at a 12-month low in September.

"This marks the second month in which 60+ day delinquencies registered below 2% since Fitch created its retail index," Fitch said.

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