DBRS Highlights Strong Performance of Canadian Credit Cards in Q2 2012
Consumer Loans & Credit CardsDBRS has today published the Canadian Credit Card Performance Index for Q2 2012. Key performance metrics as measured by DBRS continued to show improvement year-over-year and over Q1 2012.
Highlights observed in this quarter include the following:
-- Average loss rates continued their downward trend and ended the second quarter of 2012 at 4.3%. This improvement, partly driven by stable employment, is a decline of 80 bps year-over-year. On a quarterly basis, average loss rates fell by approximately 30 bps.
-- Average payment rates improved year-over-year and ended the second quarter of 2012 at 37.4%. On a quarterly basis, the average payment rate improved by approximately 3%. However, the range in the payment rate remains high, indicating the differences among issuers.
-- Average gross yield levels saw a slight uptick of approximately 30 bps year-over-year and 50 bps over Q1 2012, ending the second quarter of 2012 at 21.7%.
-- Average excess spread reached a historic high due to improving gross yield and loss rates, closing the second quarter of 2012 at 13.3%. This is an improvement of approximately 150 bps year-over-year.
Total outstanding Canadian credit card notes dropped from $24.6 billion last quarter to $22.9 billion in Q2 2012, while the aggregate custodial pool increased by $0.9 billion quarter-over-quarter to $40.5 billion. The decline in total outstanding notes was the result of the full repayment of: Series 2007-1 and 2011-1 Notes, issued by Algonquin Credit Card Trust; Series 2005-2 Notes, issued by Canadian Credit Card Trust; and Series 2010-1 Notes, issued by CARDS II Trust. The impact of note repayment in Q2 2012 was moderated by two new issuances in the quarter: $352 million in Series 2012-1 Notes, issued by Canadian Credit Card Trust, and $211.6 million in Series 2012-1 Notes, issued by Glacier Credit Card Trust.
Credit card notes continue to dominate the overall securitization market, accounting for 34.2% of the total outstanding securitization market in the second quarter of 2012, compared to 33.7% in the second quarter of 2011.
The Canadian Credit Card Performance Index has been recently improved to include pool balance, debt balance, payment rate, gross yield and net loss rate at the trust level. 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 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 with 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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