DBRS Morningstar Releases Q2 2021 Canadian Credit Card Performance Index

DBRS Limited (DBRS Morningstar) released the Canadian Credit Card Performance Index (the Index) for Q2 2021. The Index is available in Excel format as well as in PDF.

Credit performance in Canadian credit card programs remained strong, supported by the government initiatives described below. Although these support channels have lowered the risk of increased delinquencies and losses in credit card portfolios, DBRS Morningstar expects this risk to increase when government support is eventually eliminated. The extent of the impact will depend on the pace of economic recovery.

The accelerated roll-out of vaccines in Q2 2021 and higher vaccination rates resulted in a significant decline in Coronavirus Disease (COVID-19) cases and allowed provinces to gradually re-open in June 2021. Although the number of cases remained low through the summer, the fourth wave of the pandemic, led by the rapidly spreading delta variant, is hindering economic recovery. Compared with previous waves, high vaccination rates across Canada have helped to minimize the impact of the delta variant on public health as vaccines have proven to be effective in preventing serious illness, hospitalization, and death. As vaccination rates improve, DBRS Morningstar expects disruptions to economic recovery to be minimized.

As of Q2 2021, the payment rate continued trending up, increasing to 55.2% from 48.9% in Q1 2021. The average yield increased to 24.6% from 23.9% in Q1 2021, attributed in part to higher interchange fees resulting from higher card usage as the economy gradually reopened.

Delinquencies decreased quarter over quarter. Delinquencies over 90 days decreased on average to 58 basis points (bps) as of Q2 2021, down from 68 bps in Q1 2021 and below 77 bps in Q2 2020. Average net losses decreased slightly to 2.0% in Q2 2021 from 2.1% in Q1 2021, which in turn resulted in a slight increase in excess spread to 20.6% on average in Q2 2021 from 19.8% in the previous quarter.

The Government of Canada’s programs (the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, and the Canada Recovery Caregiving Benefit, extended to October 23, 2021) and the temporary changes to the Employment Insurance program continue to provide some level of support to credit performance in structured finance transactions. In addition, Canadian credit card programs benefit from strong obligor profiles.

Issuances began to pick up in Q2 2021 with CARDS II Trust issuing its Series 2021-1, totalling approximately USD 755 million, in May 2021; Eagle Credit Card Trust issuing its Series 2021-1, totalling CAD 300 million, in June 2021; and Master Credit Card Trust II issuing its Series 2021-1, totalling USD 740.7 million, in June 2021. Golden Credit Card Trust issued its Series 2021-1, totalling USD 1.07 billion, in September 2021. Term asset-backed securities (ABS) transactions backed by credit card receivables continue to represent the largest securitized asset class in the term ABS market.

The Index is published quarterly and provides data on key performance metrics, including gross yield, loss rate, payment rate, delinquencies, and excess spread. To be consistent with other metrics, DBRS Morningstar also reported excess spread at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series. All DBRS Morningstar-rated securitizations that are funded in either the ABS or the asset-backed commercial paper markets are included in the calculation of industry averages, as well as transactions not rated by DBRS Morningstar to the extent that performance data is available to the public. These averages are dollar weighted and are based on the receivables balance of custodial pools at the end of each reporting period except for excess spread, which is dollar weighted by the debt outstanding. 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 way eligible receivables are selected for securitizations.

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

The Index is available at www.dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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