CREDIT QUALITY OF U.S. CONSUMERS declines again; April's chargeoff rate hits 7%, highest since March '02
Moody's
PRESS RELEASE
New York, June 06, 2003 -- The average credit quality of U.S. consumers continued to worsen in April 2003. Compared with this time last year, more borrowers fell behind in their credit card payments and more loans were written off as uncollectible. Also, as short term interest rates have fallen to record low levels, the average yield on outstanding credit card receivables has also fallen to the lowest rate since April 1989, the inception of Moody's Credit Card Indexes. The relatively low yield and high chargeoff rate narrowed the profitability margins on the securitized credit card portfolios.
These findings are detailed in Moody's Credit Card Credit Indexes for April 2003, which track $380 billion of U.S. bank credit card loans backing securities rated by Moody's.
CHARGEOFF RATE ROSE TO 7.00%
The April 2003 chargeoff rate (defined as credit card account balances written off as uncollectible, annualized as a percent of total loans) was 7.00%, up 4.75% from the April 2002 rate, and the highest chargeoff rate since March 2002. Last month's chargeoff rate was 6.97%. Bankruptcy filings continued to factor in heavily to the overall chargeoff rate. First quarter 2003 non-business bankruptcy filings reached a record high of 404,154 cases. Many issuers report that April tends to have seasonally high bankruptcy filings.
DELINQUENCY RATE ROSE TO 5.25%
The delinquency rate, which measures the proportion of account balances for which a monthly payment is more than 30 days late as a percent of total balances, rose to 5.25% in April 2003 from 5.04% a year ago. The delinquency rate has risen over year-earlier levels in eight of the last nine months.
YIELD FELL TO RECORD LOW - 16.50%
Yield (the annualized percentage of income, primarily finance charges and fees, collected during the month as a percent of the total loans) dropped to a record low since the inception of Moody's Credit Card Index. The April 2003 yield fell to 16.50% from 17.55% a year ago. The yield has fallen for 21 consecutive months. Most of the drop in yield is attributable to low interest rate environment as well as issuers' aggressive teaser rate offers.
EXCESS SPREAD NARROWED TO 5.22%
Excess spread, which is a proxy for profitability of securitized credit card portfolios, continued to narrow compared with year earlier levels for the seventh consecutive month. In April 2003, excess spread was 5.22%, lower than 6.1% a year ago. The long-term historical mean is approximately 5.25%. |
