DBRS Publishes Q3 2010 Canadian Credit Card Performance Index

DBRS has today published the Q3 2010 Canadian Credit Card Performance Index, dating from January 2000. The index is published quarterly and provides data on key performance metrics, including gross yield, loss rate, payment rate and excess spread. To be consistent with other metrics, excess spread is also reported at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series.

The average loss rate of the Canadian credit card industry continued to improve over the past quarter, decreasing to 4.59% at the end of September from 5.82% three months ago. This improvement is due to the continued decrease in credit losses reported by several large issuers and the zero loss rate reported by Broadway Credit Card Trust (Broadway). In connection with the sale to CIBC on September 1, 2010, $285.4 million receivables of delinquent, charged-off and low credit score accounts were removed from the custodial pool of Broadway. As expected, the removal resulted in Broadway reporting negligible credit losses for the month of September. DBRS estimates the weighted average loss rate would have been 0.4% -0.5% higher if the removal had not occurred. The removal also lowered the maximum loss rate for the industry from 11.38% at the end of June to 7.21% at the end of September. DBRS expects the performance of Broadway to normalize over the next few months after more delinquencies and credit losses begin to materialize.

The average monthly payment rate remained above 30% throughout the entire third quarter and stayed at 31.32% at the end of September. The difference in payment rates among issuers continued to be large, ranging from 9.43% to 47.63%. Average gross yield at the end of September was 20.52%, slightly below the historical high of 21.45% at the end of the second quarter. Average excess spread remained resilient and continued to improve, reaching a historical peak of 10.93% in August before receding slightly to 10.86% at the end of September. Excess spread continued to show a large gap among issuers, ranging from 6.12% to 14.71%.

All securitization transactions rated by DBRS and funded either in the term or commercial paper markets are included in the calculation of industry averages. These averages are dollar-weighted and based on the receivables balance of custodial pools at the end of each reporting period. 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 matter in which eligible receivables are selected for securitizations. As at September 30, 2010, the aggregate custodial pool stood at $44.67 billion, down by $350 million from June 30, 2010, largely due to the account removal by Broadway. The outstanding debt balance increased by $448 million from the end of the second quarter to $22.78 billion, reflecting $1.23 billion of new issuance and $786 million of note repayment during this quarter.

In order to provide investors timely and insightful analysis, DBRS monitors each class of all credit card transactions on a monthly basis, focusing on the key performance metrics of securitization portfolios in recent months and, if appropriate, revising base-case assumptions and performing stress testing under various scenarios.

Copies of the index are available at www.dbrs.com or by contacting us at info@dbrs.com.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is DBRS Criteria for Canadian Credit Card Securitization, which can be found on our website under Methodologies.

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