U.S. credit card loss rates remain high on a historical basis, but continued improvements in delinquency trends indicate card chargeoffs could drop in the coming months, Fitch Ratings said.
"Credit card performance improvements have prevailed over typical seasonal trends,’ said senior director Cynthia Ullrich. "Chargeoffs and 30-day delinquencies have been in steady decline for the last several months at a time when they usually increase."
The rating agency’s Prime Credit Card Chargeoff Index remained relatively stable for the month, ticking down two basis points (bps) to 9.20%. This represents the lowest point in 19 months, according to Fitch. The results, which cover the October collection period, show a 9% year-over-year improvement in chargeoffs.
Late stage delinquencies also trended lower for the tenth consecutive month and reached a 25-month low. Fitch’s 60+ day delinquency index decreased another seven bps to 3.43% in October. Early stage delinquencies also continued to decline, with 30+ day delinquencies falling 10 bps to 4.51%. When compared to the same period last year, late stage delinquencies sit 98 bps lower, representing a 22% decline.
Gross yield fell slightly for the second straight month during October, registering a 12 basis point decrease to 21.80%. Despite the decline, yield remained 11% higher year over year, a result of discount options and repricing initiatives from different issuers. However, Fitch expects performance to decline by up to 10% in the coming months as a result of regulatory and legislative changes.
Despite the small improvement of chargeoffs, the decline of gross yield during the month drove excess spread lower in October. Monthly excess spread decreased seven basis points to 9.88% yet remained 32% higher during the same period in 2009.
The three-month average excess spread also slipped by three bps during the month to 9.78% but still recorded the second highest level historically. Compared to last year, three month excess is 56% higher.
Monthly payment rate (MPR) fell again for the second straight month after registering a 31-month high back in September. MPR receded 42 basis points in October to 19.23%.
At the current level, MPR still represented a 4% increase compared to the same period last year and is more than 19% higher compared with the long term historic average of 16.15%, Fitch reported.