DBRS Publishes Q1 2011 Canadian Credit Card Performance Index Showing Decreasing Losses and a Stabilizing Outlook

The DBRS Q1 2011 Canadian Credit Card Performance Index published today shows that at the end of March 2011, the average annualized credit card losses in Canada had decreased by 20% to 4.92% from 6.13% at the end of March 2010. The improvement is a reflection of positive economic trends in declining unemployment rates and personal bankruptcies after peaks in 2009. At the end of March 2011, the unemployment rate was 7.70%, down from 8.20% a year ago. Personal bankruptcies, including consumer proposals, declined 8% from the same period a year ago. This continued the trend from the peak experienced in September 2009, reflecting the improving financial health of the Canadian consumer. This is demonstrated by the weighted-average loss rate, which has shown a generally positive direction since early 2010. While some issuers continued to experience elevated loss rates close to an annualized rate of 10%, the overall industry has migrated through the worst of the recent financial crisis and is now exhibiting more stable loss trends.

Other highlights observed in this quarter:

– The monthly payment rate decreased slightly but remained greater than 28% throughout the first quarter of 2011, reflecting lower credit card repayments after the holiday season. The difference in payment rates among issuers continued to be large, ranging from approximately 10% to more than 50%, reflecting the nature of credit usage by their respective underlying client base.

– The levels of gross yield stayed stable during the quarter, ending at 21.18%.

– Excess spread was steady during this quarter, ending at 11.18%. It continued to show a large range among issuers, however, ranging from as low as 3% to more than 15%.

– The aggregate custodial pools ended at $41.19 billion, down by $4.04 billion from the prior quarter. The outstanding debt balance decreased slightly to $20.21 billion, mainly due to the $1.05 billion net reduction in the asset-backed securities (ABS) market.

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. All securitization transactions rated by DBRS and funded either in the term or asset-backed commercial paper (ABCP) 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 manner in which eligible receivables are selected for securitizations.

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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