U.S. credit card ABS chargeoffs reversed course in March, rising for the first time in six months, even as most other metrics posted further gains, according to Fitch Ratings.
Fitch's Prime Credit Card Chargeoff Index rose 26 basis points in March, to 8.31%.
In a press release, Fitch Managing Director Michael Dean said the increase in chargeoffs was more likely attributable to seasonal factors such as a rise in tax season bankruptcy filings, and less a precursor to worsening credit trends. “Ongoing delinquency improvements are likely to lead to stabilizing, albeit elevated, chargeoff levels,” he said.
For the month, some of the largest trusts that make up a majority of Fitch’s index, including Chase, Citibank, and Discover, reported an increase in default rates. Credit card defaults are at a two-year low and down 26% year over year yet they remain 39% above the historical average.
Late stage delinquencies are still trending lower, and may soon hit a three-year low. For the 14th straight month, Fitch’s 60-plus day delinquency index decreased nine basis points, to 3.11% in March, representing 30% year-over-year improvement. Early stage delinquencies followed suit, decreasing another 10 basis points, to 4%. All of the trusts that make up Fitch’s index have once again reported lower delinquency rates for the month.
Gross yield rebounded for the month, increasing 47 basis points to 20.97%. With this gain, yield performance remains 12% higher than the historical average at inception of 18.69%.
Despite the slight increase in chargeoffs, excess spread posted healthier levels compared to the prior month. Monthly excess spread improved 69 basis points to 10.57%, while the three-month average trended higher with a 20 basis point gain to 10.44%.
“With March marking the highest ever three-month average excess spread and already 39% above year-over-year levels, excess spread is likely to remain robust throughout 2011,” said Fitch director Herman Poon.
The monthly payment rate fell for the second straight month, declining 1.16% to 19.21%. Current levels in MPR are still approximately 19% higher than the historical average of 16.21%.
Fitch's Prime Credit Card index was established in 1991 and tracks more than $167 billion of prime credit card ABS backed by approximately $269 billion of principal receivables.
Performance in retail credit card ABS was mixed in March, with delinquencies, yield, and excess spread posted positive movements, while chargeoffs increased and the monthly payment rate slowed. The 30-plus day delinquency index held stable at 6.02%, while late stage delinquencies improved seven basis points to 4.13%. Retail card delinquencies currently stand at a 30-month low.
Defaults on retail credit card ABS rose after three consecutive months of improvement, increasing 31 bps to 10.95% in March. Despite the blip, retail chargeoffs are at two year lows and are approximately 18% lower year over year.
Gross yield recovered again after a slip in February, and surged ahead with a 2.68% improvement to 26.94%. Excess spread on a monthly and three month average basis both increased, adding 249 basis points and 74 basis points, respectively, to previous month’s levels. Monthly excess spread currently registered at 11.35%, with a three-month average of 9.66%, a 29-month high. MPR fell slightly, posting a 36 basis point decline to 14.33%.
Fitch's Retail Credit Card Index tracks more than $38 billion of retail or private-label credit card ABS backed by approximately $53 billion of principal receivables.