Credit Card ABS Performance Continues to Deteriorate

The performance of US credit card asset-backed securities continued to deteriorate in August, but Standard and Poor’s does not expect defaults to exceed “historical parameters.”

As measured by Standard & Poor’s Ratings Services’ US bankcard Credit Card Quality Index (CCQI), charge-offs rose 40 basis points (bps) in August 2008, while the total payment rate declined 60 bps.

As of August 2008, charge-offs had increased about 51% on a year-over-year basis, and total delinquencies were up about 19%.

(Charge-offs represent the value of loans removed from the books and charged against loss reserves.) During the same period, the total payment rate dropped 10.4%. On a positive note, excess spread, which provides the first level of protection against defaults, remained healthy at 6.4% despite a 40-bp drop during the month.

In a separate report, S&P said “we believe based on our analysis of current and projected performance for the sector that even under rigorous stresses in a more-severe recession scenario, defaults are unlikely to be outside of historical parameters. In addition, while it remains our view that ratings on the senior-most classes of ABS backed by prime bankcard receivables should remain relatively stable, we can’t rule out downgrades altogether. We expect to see greater volatility in the lower-investment-grade classes in the ‘BBB’ rating category, and below.”