Morningstar DBRS Releases Q4 2024 Canadian Credit Card Performance Index

DBRS Limited (Morningstar DBRS) released the Canadian Credit Card Performance Index (the Index) for Q4 2024. The Index is available in Excel format as well as in PDF.

The higher interest rates worked their way through the economy, removed excess demand and lowered inflation. This prompted the Bank of Canada to cut its benchmark interest rate six times since June 2024 to 3.0% as of January 2025. The restrictive financial conditions weakened the labour market, causing the unemployment rate to rise to 6.6% in January 2025 from 5.8% at the end of 2023.

Amid a challenging macroeconomic environment, credit performance in securitized credit card portfolios had deteriorated. Although securitization pools experienced a rise in delinquencies and credit losses, they remain in line with historical levels pre-pandemic. A softening labour market added to the financial pressure from high borrowing costs faced by consumers during the year, contributing to the rise in delinquencies and credit losses in credit card securitization pools. The 30-plus day delinquency rate in securitized credit card portfolios increased to 1.89% in December 2024 compared with 1.79% 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 3.08% as of Q4 2024, compared with 2.72% reported in Q4 2023, but also remain below the 3.19% observed in Q1 2020. Excess spread averaged 20.4% over the quarter.

Payments rates have increased, with the Q4 2024 average payment rate at 61.5%, up from 58.6% in Q4 2023. The average yield has remained relatively stable year-over-year at 26.4% as of Q4 2024, compared with 26.1% in Q4 2023.

The impact from the U.S. trade policy on Canadian exports and business investments could be significant and could push the Canadian economy into a recession, raise unemployment, and drive up the cost of goods for consumers. Potential layoffs and the rise in consumer prices would add financial pressure to already strained consumers, which would lead to higher delinquencies and potential losses in securitized pools of credit card portfolios. However, the magnitude of the impact would depend on how the trade war evolves.

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.

There was one issuance in Q4 2024. Evergreen Credit Card Trust issued its Credit Card Receivables-Backed Notes, Series 2024-CRT4, totalling approximately $3.02 billion, in October 2024. 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 https://dbrs.morningstar.com.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577