DBRS Limited (DBRS Morningstar) released the Canadian Credit Card Performance Index (the Index) for Q4 2022. The Index is available in Excel format as well as in PDF.
Credit performance in securitized credit card portfolios continues to deteriorate slightly as inflationary pressures and higher interest rates strain consumer finances and Coronavirus Disease (COVID-19) pandemic accumulated savings taper off. The 30+ day delinquency rate rose to 1.47% in December 2022 from 1.38% in the prior year but remains below the pre-pandemic level of 2.36% posted in March 2020. Average net losses increased slightly to 1.95% in Q4 2022, from 1.53% reported in Q4 2021. Excess spread averaged 21.2% over the quarter.
The average payment rate has been trending upward. As of Q3 2022, it averaged 62.2%, up from 59.7% in the previous quarter and from 61.1% in Q4 2021. The average yield has increased slightly quarter over quarter at 26.2% compared with 25.2% in Q3 2022.
Inflationary pressures, high interest rates, and current geopolitical risks will continue to add uncertainty. The Bank of Canada has raised the policy interest rate by 425 bps to 4.5% since March 2022 to control inflation, which will continue to strain consumer finances and dampen demand. Credit performance continues to be partially supported by a tight job market, wage increases, and savings. However, as the increase in the cost of living continues to outpace wage growth and deplete savings, delinquencies in credit card portfolios are likely to trend higher. DBRS Morningstar expects credit risk in securitizations will be partially mitigated by a low unemployment rate and conservative assumptions, coupled with robust levels of credit enhancement available to noteholders. Canadian credit card securitizations are backed by pools consisting of mostly prime obligors who continue to demonstrate a stronger ability than the average borrower to meet their credit card debt obligations because of their tendency to have more financial resources and financing options.
Q4 2022 saw a total of three issuances with Master Credit Card Trust issuing its Credit Card Receivables-Backed Notes, Series 2022-4 and 2022-5, totalling approximately $2.2 billion, in October 2022; and Evergreen Credit Card Trust issuing its Credit Card Receivables-Backed Notes, Series 2022-CRT2, totalling approximately $3.5 billion, in December 2022; Term asset-backed securities (ABS) transactions backed by credit card receivables continue to represent the largest securitized asset class in the term ABS market.
The Index is published quarterly and provides data on key performance metrics, including gross yield, loss rate, payment rate, delinquencies, and excess spread. To be consistent with other metrics, DBRS Morningstar also reported excess spread at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series. All DBRS Morningstar-rated securitizations that are funded in either the ABS or the asset-backed commercial paper markets are included in the calculation of industry averages, as well as transactions not rated by DBRS Morningstar to the extent that performance data is available to the public. These averages are dollar weighted and are based on the receivables balance of custodial pools at the end of each reporting period except for excess spread, which is dollar weighted by the debt outstanding. As such, these metrics are monthly results. The custodial pool is generally a subset of an issuer’s managed portfolio, depending on the mix of the issuer’s receivables and the way eligible receivables are selected for securitizations.
All figures are in Canadian dollars unless otherwise noted.
The Index is available at www.dbrsmorningstar.com.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577