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Fitch: US Credit Card Asset Quality Expected to Slowly Normalize
May 15, 2015 / 4:17 PM / 3 years ago

Fitch: US Credit Card Asset Quality Expected to Slowly Normalize

(The following statement was released by the rating agency) CHICAGO, May 15 (Fitch) Credit card asset quality will remain strong in 2015, although delinquencies and charge-offs are expected to end the year modestly higher than beginning of year levels, says Fitch Ratings in a special report published today. Loan growth and moderate loosening of underwriting standards will contribute to a slow reversion nearer to longer-term averages. Fitch sees the expected level of asset quality deterioration to be easily manageable at credit card lenders' current ratings, reflecting these issuers' strong capitalization levels. Average losses in first-quarter 2015 for the top six issuers were 213 bps below their 2010-2014 averages and are at a level that Fitch believes is unsustainable over the long term. Net charge-offs improved 25 bps, respectively, year over year, on average, for the top six general purpose card issuers excluding Capital One, whose consolidated metrics include higher loss retail receivables. Ninety plus-day delinquencies in first-quarter 2015 averaged 0.85% for top issuers on a weighted average basis for the companies that report the statistic. That level is down 9 bps from 0.94% year over year, although the pace of improvement continued to decline. Fitch does not believe any trends point to material deterioration in asset quality over the near term, but we believe the industry may be approaching the inflection point in credit performance. Purchase volumes were up 6.6% in first-quarter 2015, on average, for the top seven general purpose card issuers compared with up 6.7% in first-quarter 2014. Fitch believes that volume growth could have been higher had it not been slowed by lower gas prices year over year, which appears not to have yet translated into increased consumer spending in other categories. Despite the growth of purchase volumes, consumer leverage, as estimated by the financial obligations ratio (FOR), which measures debt service payments on mortgage debt, auto debt, consumer debt and property taxes as a percentage of disposable personal income, continued to decline, amounting to 15.27% in fourth-quarter 2014. This compares with a peak FOR of 18.09% recorded in fourth-quarter 2007 and a 35-year average of 16.51%. As interest rates rise, and consumers experience higher debt service burdens, Fitch would expect consumer leverage to increase, all else equal. Fitch believes the U.S. consumer's propensity to borrow has declined to some extent following the recent financial crisis, as evidenced by trends in the savings rate and personal leverage ratios. In a positive sign for credit card borrower strength, the personal savings rate in the U.S. is trending higher and is 9 bps above the monthly average rate of 5.7% during 2010-2014. For issuers, the profitability of cards has also remained solid, with the top seven issuers posting an average return on loans of 4.0% in first-quarter 2015. Still, returns were down modestly year over year, driven in part by a decline in reserve releases. US weekly unemployment claims, which historically track Fitch's ABS Index of Prime Chargeoffs, reached five-year lows in first-quarter 2015. Fitch's Prime Chargeoff Index meanwhile had been holding steady through much of the first quarter at a level above the bottom it reached several times over the second half of 2014. Improvements in weekly unemployment claims most recently also appear to be plateauing, further suggesting that an inflection point in asset quality may be near, although the path of asset quality back to normalized levels will likely be slow under steady economic conditions. For a detailed analysis of card issuers' first-quarter 2015 performance, please see Fitch's semi-annual special report "U.S. Credit Cards: Asset Quality Review 1Q15," on Contact: Meghan Neenan, CFA Senior Director Financial Institutions +1-212-908-9121 Matthew Noll, CFA Senior Director Financial Institutions Fitch Wire +1-212-908-0652 New York Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email:; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: U.S. Credit Cards: Asset Quality Review 1Q15 (Gradual Credit Normalization Expected Throughout 2015) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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