Morningstar DBRS Releases Q3 2024 Canadian Credit Card Performance Index

DBRS Limited (Morningstar DBRS) released the Canadian Credit Card Performance Index (the Index) for Q3 2024. The Index is available in Excel format as well as in PDF.

Credit performance in securitized credit card portfolios continues to deteriorate. However, despite a challenging macroeconomic environment, performance metrics are still slightly better than or at similar levels to what was observed before the pandemic. The higher interest rates have worked their way through the economy, removing excess demand, lowering inflation. The Bank of Canada cut its benchmark interest rate five times this year, to 3.25%.

The 30-plus day delinquency rate in securitized credit card portfolios increased to 1.78% in September 2024 compared with 1.63% 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 2.91% as of Q3 2024, compared with 2.44% reported in Q3 2023, but also remain below the 3.19% observed in Q1 2020. Excess spread averaged 19.3% over the quarter.

Payments rates continue to decline, with the Q3 2024 average payment rate at 57.7%, down from 58.8% in Q3 2023. The average yield has remained relatively stable year-over-year at 25.3% as of Q3 2024, compared with 25.9% in Q3 2023.

The number of quarterly filings for consumer insolvencies has returned to pre-pandemic levels and is likely to rise further as the impact of higher cost of living and a weaker labour market, continue to put pressure on consumers' finances. Credit performance in securitized pools of credit card receivables has seen some slight deterioration but remains well within expectations. Downside risks to credit performance will be partially mitigated by the mostly prime nature of obligors, who demonstrate a strong record of repaying their debts on a timely basis, and conservative assumptions coupled with robust levels of credit enhancement available in the transactions that can withstand a deterioration in macroeconomic activity.

Q3 2024 saw a total of three issuances with CARDS II Trust issuing its Credit Card Receivables-Backed Notes, Series 2024-1, totalling approximately $1.34 billion, in July 2024, and Evergreen Credit Card Trust issuing its Credit Card Receivables-Backed Notes, Series 2024-1 and 2024-2, totalling approximately $2.35 billion, in July and August 2024, respectfully.. 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, we also reported excess spread at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series. All Morningstar DBRS-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 Morningstar DBRS 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 dbrs.morningstar.com.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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