DBRS Publishes Q2 2011 Canadian Credit Card Performance Index and Highlights the Stable Performance

The DBRS Q2 2011 Canadian Credit Card Performance Index published today shows that at the end of June 2011, the average annualized credit card losses in Canada remained relatively stable at 5.1% compared with last quarter, down by 70 basis points from the same time last year. These declines are in tandem with ongoing improvements in consumer-related statistics, such as the decline in the unemployment rate to 7.4%, down from 7.7% at the end of Q1 2011. In addition, personal bankruptcies, including consumer proposals in May, decreased by 12.8% from the end of March 2011. Overall, the financial health of the Canadian consumer continued to improve in the second quarter and the credit card industry has clearly stabilized and receded from the worst of the recent financial crisis.

Other highlights observed in this quarter:

– Despite stable average losses, some issuers continued to experience volatile loss rates well above the industry average. The range widened from the previous quarter, with a maximum of 11.3% and a minimum of 2.3%.

– The monthly payment rate remained stable at greater than 30% throughout the second quarter of 2011: the weighted-average payment rate was 34.2% at the end of June 2011. However, the range continued to be large between a high of more than 50% and a low of approximately 10% in this quarter.

– The gross yield levels remained stable during the second quarter, ending at 21.5%, 30 basis points higher than the end of March 2011.

– Excess spread also remained steady throughout the quarter, ending at 11.7%. The range stayed large, however, between the high of 14.0% and the low of 4.1%.

– The aggregate custodial pools ended at $42.0 billion, up by $832 million from the prior quarter. The outstanding debt balance increased significantly by $3.5 billion to $23.6 billion from the end of March 2011. This large change is due to $4.2 billion in new issuances in the second quarter. For 2011, new asset-backed securities (ABS) and asset-backed commercial paper (ABCP) credit card issuance volume was $6.5 billion at the end of June.

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 that are funded either in the term or 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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