An increase in charge-off rates for credit card accounts held at the bank portfolio level is likely to spill over into credit card securitization trusts, according to a Moody’s Investors Service report.
Moody’s said that 3Q data reported by the major credit card issuers (this includes Bank of America, Capital One, Discover, Citibank, JP Morgan and American Express) show that for the first time in five years, annualized charge-off rate for non-securitized receivables has exceed that of securitized receivables.
Charge-offs are the amount of uncollected credit card balances removed from a bank's books and charged against its loss reserve. The charge-off rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer.
However, the imbalance between performance at the bank portfolio level and the bank’s credit card securitization trust level may soon be corrected as banks begin to include receivables from the recently originated accounts.
“The newly originated accounts are much less seasoned and, consequently, have higher charge-offs than the more highly-seasoned accounts,” said Moody’s.