The performance of credit card ABS, particularly charge-off levels, will remain near current levels in the U.S., the U.K. and Canada through the end of 2013, as the steady improvement in performance since the end of the recession tails off, according to a report published this morning by Moody’s Investors Service. However, collateral performance in Canada, particularly charge-offs, will be relatively more sensitive to shifts in the country’s unemployment rate than is the case in the U.S. and the U.K.
Consistent with low and stable charge-off levels, payment rates will remain near their current levels in all three regions, Moody’s said. In the U.S. and Canada, the payment rates are currently near their five-year highs, reflecting the larger proportion of convenience users remaining in collateral pools in the wake of the recession. Yield and excess spread will also remain at or above current levels.
In the US, charge-offs will remain between 3.0% and 4.0%, while in the UK, they will hover around 5.0% in 2013, after steady improvement since their respective peaks in late-2009 and mid-2010. Delinquencies will continue to decline in both regions, while the credit quality of existing cardholders in the trusts will remain high.
Charge-offs in the U.S. and the U.K. will also remain decoupled from changes in unemployment in 2013. Trust collateral quality in the U.S. and the U.K. remains exceptionally high, because issuers charged off so many weaker cardholders during the recent recession. In the U.S., very few issuers have added new accounts to their trusts in the last three years, and are unlikely to reverse course in 2013.
In the U.K., some lenders have begun to expand credit lines to their existing cardholders. Additionally, lower credit quality borrowers are increasing their purchases, while premium borrowers continue to deleverage, which, over the longer term, could cause shifts in collateral composition towards a higher proportion of riskier borrowers and, eventually, an increase in charge-off rates. However, these trends will have a limited impact on U.K. credit card trust performance over the remainder of the year, with any potential charge-off increases occurring post-2013.