DBRS Morningstar Releases Q3 2023 Canadian Credit Card Performance Index

DBRS Limited (DBRS Morningstar) released the Canadian Credit Card Performance Index (the Index) for Q3 2023. The Index is available in Excel format as well as in PDF.

Credit performance in securitized credit card portfolios continues to deteriorate slightly as inflation and higher interest rates continue to put pressure on consumer finances; however, it remains better than what was observed prior to the Coronavirus Disease (COVID-19) pandemic. The 30-plus day delinquency rate increased to 1.63% in September 2023 compared with 1.49% in the prior year but remains below the pre-coronavirus pandemic level of 2.36% posted in March 2020. Average net losses have been trending upwards. They have increased to 2.44% as of Q3 2023, compared with 1.86% reported in Q3 2022. Excess spread averaged 20.4% over the quarter.

After trending upwards for the last three years, payment rates have stabilized, with the Q3 2023 average payment rate at 58.8%, slightly down from 59.7% in Q3 2022. The average yield has remained relatively stable year-over-year at 25.9% as of Q3 2023, slightly up from 25.2% in Q3 2022.

The number of quarterly filings for consumer insolvencies has returned to pre-pandemic levels and is likely to rise further as higher interest rates and inflation continue to put pressure on consumers’ finances. However, credit performance in securitized credit card portfolios remains better than what was observed prior to the coronavirus pandemic. The Bank of Canada has raised the policy interest rate by 475 basis points to 5.0% since March 2022 to control inflation, which continues to strain consumer finances and dampen demand. Delinquencies in credit card portfolios are likely to trend higher as the increase in the cost of living, combined with the increase in the cost of servicing households’ debt, continues to outpace wage growth and deplete savings. DBRS Morningstar expects credit risk in securitizations will be partially mitigated by a low unemployment rate and conservative assumptions, coupled with robust levels of credit enhancement available to noteholders. Canadian credit card securitizations are backed by pools consisting of mostly prime obligors who continue to demonstrate a stronger ability than the average borrower to meet their credit card debt obligations because of their tendency to have more financial resources and financing options.

Q3 2023 saw a total of four issuances with Master Credit Card Trust II issuing its Credit Card Receivables-Backed Notes, Series 2023-2, totalling approximately $838.1 million, in July 2023; CARDS II Trust issuing its Credit Card Receivables-Backed Notes, Series 2023-2, totalling approximately $816.5 million, in July 2023; Glacier Credit Card Trust issuing its Credit Card Receivables-Backed Notes, Series 2023-1, totalling $500 million, in August 2023; and Trillium Credit Card Trust II issuing its Credit Card Receivables-Backed Notes, Series 2023-3, totalling approximately $891.8 million, in September 2023. 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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