Credit card-backed securities performance likely to weaken
April 30, 2008
Performance of securities backed by credit-card receivables remains within historical trends, but indicators show performance could be weakening, credit ratings agency Fitch Ratings said in a report Wednesday.
"Despite these negative macroeconomic trends, credit card delinquencies and charge-offs have just recently returned to their long-term averages following a two-year period of exceptionally strong performance in the wake of the implementation of new bankruptcy legislation in 2005," Cynthia Ullrich, a senior director at Fitch, said in a statement.
Credit performance of credit-card asset-backed securities is likely to decline as individual customers pay less and with less frequency on outstanding balances. Asset-backed securities are pools of loans, in this case credit-card debt, that are sold off to investors.
Eventually if losses on the individual credit-card debt in the securities swells, it triggers losses on the securities themselves."Fitch Ratings continues to expect declining asset performance for the credit card sector mainly due to higher delinquencies, higher charge-offs and slower monthly payment rates," the agency said in the report.
Among prime credit-card debt, delinquencies were 3.16 percent in March, compared with 3.12 percent in February and 2.69 percent in March 2007. Charge-offs, loans written off as not being repaid, rose to 5.73 percent in March, from 5.64 percent the previous month. Charge-offs totaled 4.36 percent in March 2007.
Among subprime loans, delinquencies rose to 5.82 percent in March from 5.65 percent the previous month, while charge-offs rose to 11.17 percent from 10.68 percent the prior months. Delinquencies were 5.27 percent, while charge-offs were 8.73 percent during the same month last year.
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