Credit card asset-backed securities (ABS) turned in strong performances in the third quarter, as chargeoffs in prime card collateral pools dropped to a historically low average in the third quarter, and retail store card chargeoffs also a made sharp turnaround from pre-pandemic levels.
Prime card chargeoffs were 1.93% in the third quarter, a historic low. Retail store card chargeoffs were 3.72%, compared with 7.04% in Q1 2020, FitchRatings found in “Credit Card Index: Movers and Shakers – U.S. 3Q21,” its latest study of credit card ABS performance metrics.
Late-stage delinquencies and payment rates also broke performance records in the same period, Fitch said in the report, released on Dec. 3.
Late-stage delinquency, in which payments are delayed for 60 days or more, averaged .58%, lower than the .66% average from the second quarter. In the retail index, the late-stage delinquency fell an additional 15 basis points to 1.35% in the third quarter. This indicates that consumers who aren’t in payment-relief programs are paying down their debt and haven’t switched over to delinquency, the report says.
The monthly payment rate had the highest one-month average (39.58%) and highest three-month average (39.16%) in the agency’s prime credit card index’s 20-year history, the report said.
Fitch out the solid performances down to coronavirus assistance programs that helped consumers increase their savings and pay down credit card debts. Many of those programs ending, yet consumers are still whittling down credit card debt, Fitch said.
The travel and tourism industries, which account for much of consumers’ credit card balances, took a major hit due to pandemic shutdown, which helped to keep credit card delinquencies at bay, researchers said.
As for ongoing supply chain and economic effects from the coronavirus’ delta variant, and the recent proliferation of the omicron variant, Fitch researchers say that the new variant’s presence isn’t expected to heavily impact the credit card ABS sector.
There are bigger indicators of the health of the credit card ABS market to monitor, Fitch said.
“If unemployment spikes and/or household savings begin to decline (should discretionary spending increase), we would expect further pressure on credit cards for next year to lead to some potential performance deterioration from the improvements that we observe today,” said Herman C. Poon, senior director at FitchRatings.
Although people are paying on their credit card debt, non-housing debt remained stable with a small increase to $4.25 trillion in the third quarter, up from $4.19 trillion, last quarter, Fitch said.
Even though credit card balances are $123 billion lower than they were at the end of 2019, the balances increased by another $17 billion in the third quarter to $819 billion, Fitch said.
In the "Fitch Ratings 2022 Outlook: North America Structured Finance" report, the agency said that it is neutral on retail and prime credit card ABS.
Prime credit cards are expected to have modest improvements much like the second half of this year. With improved unemployment rates payment rate metrics should be strong in the U.S. and Canada and “excess spread levels will benefit from benign asset credit card performance,” according to the report.
Retail credit cards ABS are projected to experience more volatility than prime credit cards, but that is mainly due to the less competitive caliber of account profiles. Even with their lower credit profiles, the borrowers are able to pay because of higher savings rates keeping performances within expectations, the report said.
