Credit card holders continued to step up their repayment rates in the first quarter of 1999, but this trend is not having a negative impact on the flow of new securitizations of credit card receivables, according to bank analysts.
Healthy household incomes, low unemployment and a strong economy have combined to enable cardholders to repay a record-high proportion of their credit balances in the first quarter, said Latonia Dukes, vice president in the structured finance group at Moody's Investors Service.
Although there are no direct implications for securitizations in the higher payment rates, Dukes said they are a good thing for investors.
For the first quarter, the principal payment rate on securitized credit card loans averaged 14.94%, according to the Moody's survey, up from 14.35% in the year ago period. For the month of March the rate was even higher, with cardholders repaying 15.71% of the balances, versus 14.66% in March 1998.
At the same time, the charge-off rate - the amount of bad loans written off - averaged 6% in the first quarter, down from 6.58% in the comparable year ago period and 6.09% in the fourth quarter of 1998.
Since credit card securitizations are revolving credits, the larger payments do not affect the payment stream to investors, said Karen Wagner, director of securitized assets research at Credit Suisse First Boston. Rather, she said, the proceeds are invested into new credit card receivables. The holder still has a bullet issue, she added.
While the quicker paydown is a positive development, Tom Hourican, managing director at Chase Securities Inc., does not believe it is enough to cause a decline in the amount of receivables available for new securitizations. From the supply perspective, there has been a general upward trend although it is not a dramatic increase, adds Hourican.
Although the trend is to step up payments, both Wagner and Hourican said that in the event of a slowdown in the economy, a reversal of these numbers would be fully anticipated. Repayments would slow and delinquencies would begin to increase.
However, Dukes also attributes some of the improvement to issuer's efforts at better risk management, risk-based pricing and more active monitoring of portfolio risk, which could also have longer-term implications. - David Feldheim
