Thursday, May 7, 2009

Fitch: Card delinquencies rise; show signs of slowing

Credit card losses resulting from rising unemployment and mounting delinquency once again reached record levels in April 2009, according to most recent Credit Card Index report from Fitch Ratings. The silver lining, however, lies in that the pace of the acceleration slowed.

The credit rating agency said that while delinquencies and charge-offs continued to rise, the rate of increases slowed, although it was too soon to determine if it would last. "While the slowdown in rate of delinquency increase could prove encouraging if it persists, it is too early to proclaim a trend," said Michael Dean, a managing director for Fitch. "Charge-offs and delinquencies will likely continue climbing over the near term."

In the report, "Credit Cards: Asset Quality Review 1Q09," published May 4, Fitch estimated that credit card metrics will continue to deteriorate over the entirety of 2009 and into 2010.

Predicted losses are largely the result of delinquent payments resulting from the high unemployment rate, which rose 130 basis points in the first quarter of 2009, signaling continuing problems for at least the next year.

Fitch's Prime Credit Card Charge-off Index -- which tracks debt in months past payment and considered uncollectable -- increased 48 basis points to a second consecutive record high of 8.89 percent. Since the beginning of 2009, charge-offs rose 18 percent and 44 percent above April 2008's level. Meanwhile, Fitch's Delinquency Index -- which defines delinquent accounts as those 60 days past due -- posted levels at over 4 percent and rose 11 basis points, the smallest monthly increase in five months of rising delinquency.

Credit cards will also be challenged by portfolio losses, smaller loan portfolios, and lower spend volumes into 2010, Fitch reported.

While the Federal Reserve Board launched its Term Asset-Backed Securities Loan Facility (TALF) on March 3, 2009, to try and increase credit availability, most card issuers have yet to partake in the program, with Citi as the only financial institution of the top six to issue TALF notes as of March 26, 2009.