Morningstar DBRS Releases Q1 2025 Canadian Credit Card Performance Index

DBRS Limited (Morningstar DBRS) released the Canadian Credit Card Performance Index (the Index) for Q1 2025. 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 seven times since June 2024 to 2.75% as of June 2025. The restrictive financial conditions weakened the labour market, causing the unemployment rate to rise to 6.7% as of March 2025 from 5.8% at the end of 2023.

Credit performance in securitized credit card portfolios deteriorated amid a challenging macroeconomic environment in 2024. A softening labour market added to the financial pressure from high borrowing costs faced by consumers, contributing to the rise in delinquencies and credit losses in credit card securitization pools. However, performance stabilized in the first quarter of 2025. The 30-plus day delinquency rate in securitized credit card portfolios was reported at 1.98% in March 2025, in line with the prior year but remains below the pre-coronavirus pandemic level of 2.36% posted in March 2020. Average net losses declined slightly compared with the prior year, averaging 2.91% over Q1 2025, compared with 2.96% reported in Q1 2024, and remain below the 3.19% observed in Q1 2020. Excess spread averaged 19.7% over the quarter.

Payments rates have remained stable, with the Q1 2025 average payment rate at 54.0%, up from 53.4% in Q1 2024. The average yield has remained relatively stable year-over-year at 25.6% as of Q1 2025, compared with 25.5% in Q1 2024.

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 Q1 2025. Evergreen Credit Card Trust issued its Credit Card Receivables-Backed Notes, Series 2025-CRT5, totaling approximately $2.75 billion, in January 2025. 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.

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