Bent but Not Broken: European Credit Card ABS Performance Two Years Into COVID-19

Following DBRS Morningstar’s January 2022 commentary, European Structured Finance Outlook 2022, this commentary further discusses the performance of credit card and revolving line of credit portfolios rated by DBRS Morningstar in Europe since the initial Coronavirus Disease (COVID-19) pandemic began two years ago and aims to provide more insights into our credit performance outlook for 2022 and related analytical approach.

Summary highlights include:
-- The adverse impact of the coronavirus on the credit card and revolving credit portfolio performance appeared to be temporary with quick recovery.
-- We expect the credit performance to remain within historical norms but continue to be susceptible to sudden negative shocks, despite the resilience observed so far during the pandemic.
-- We have discontinued the specific adjustment to our expected performance assumption based on coronavirus macroeconomic scenarios published by DBRS Morningstar’s Sovereign group and there is no rating impact due to this change.

We consider the risks specifically associated with the pandemic have now been largely mitigated in light of relative resilience thus far during the pandemic. Nonetheless, the sector faces headwinds in 2022 due to the risks of further coronavirus variants, uneven economic recovery, persistent inflationary pressures, interest rate increases and, more recently, geopolitical situations. Portfolios with higher concentrations in the lower-income or riskier credit segments where borrowers could face declining debt servicing capacity remain susceptible to further shocks.