Although performance on U.S. credit card securities remains well within long-term historical trends and continues to resist the rapid deterioration of subprime mortgage-backed securities, rising credit card balances, delinquencies and chargeoffs are becoming a cause for concern.
According to Fitch Ratings’ latest ‘Credit Card Movers & Shakers,’ revolving consumer credit, which is predominantly composed of credit card receivables, grew over 7.5% in 2007 and now stands at almost $952 billion.
Credit card balances have been building as other sources of funding, such as home equity lines of credit and cash out mortgage refinancing, have become less readily available. This comes as consumer confidence has weakened and unemployment has been rising in recent months.
Fitch Ratings continues to expect declining asset performance for the credit card sector mainly due to higher delinquencies, higher chargeoffs, and slower monthly payment rates.
“Despite these negative macroeconomic trends, credit card delinquencies and chargeoffs 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″, said Senior Director Cynthia Ullrich. In addition, excess spread has remained near historical highs.
Fitch’s comments are consistent with a March report from CreditSights featured on Research Recap, Warning Signs Seen in Rising Credit Card Delinquencies.
Fitch says it continues to expect that credit card asset-backed securities will perform within expectations, with limited ratings volatility anticipated, due to the significant credit enhancement and structural protections incorporated into these transactions.