DBRS Publishes Q4 2010 Canadian Credit Card Performance Index

DBRS has today published the Q4 2010 Canadian Credit Card Performance Index, dating from January 2000. The index is published quarterly and provides data on key performance metrics, including gross yield, loss rate, payment rate and excess spread. To be consistent with other metrics, excess spread is also reported at the issuer level, taking into consideration the weighted-average cost of funds and expenses of all outstanding series.

The average loss rate of the Canadian credit card industry increased slightly to 4.87% from 4.59% at the end of September 2010. The increase was in part due to compressed levels at the beginning of September as a result of the zero loss rate reported by Broadway Credit Card Trust (Broadway) in connection with the sale to CIBC on September 1, 2010. The loss rates reported by Broadway have since increased to 3.44% for the month of December 2010. DBRS expects Broadway’s net loss ratio to normalize at about 6% to 7%. Despite the slight increase in weighted average loss rate in this quarter, the weighted average loss rate decreased significantly to 4.87% from 6.08% at the end of 2009.

The average monthly payment rate remained above 31% throughout the entire fourth quarter and reached 34.21% at the end of December, which was also the highest average payment rate in 2010. The difference in payment rates among issuers remained large, ranging from 10.29% to 49.78%. Average gross yield peaked at 21.65% in November, the highest level in 2010, and closed at 21.06% at the end of December, above 20.52% at the end of the third quarter. Average excess spread remained resilient and continued to improve, reaching a historical peak of 11.80% in November and ended with a slight decrease in December at 11.05%. However, the excess spread continued to show a large gap among issuers, ranging from 4.58% to 13.05%.

All securitization transactions rated by DBRS and funded either in the term or asset-backed commercial paper (ABCP) markets are included in the calculation of industry averages. These averages are dollar-weighted and based on the receivables balance of custodial pools at the end of each reporting period. 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 manner in which eligible receivables are selected for securitizations. As at December 31, 2010, the aggregate custodial pools stood at $45.24 billion, up by $566.81 million from the prior quarter but below the $47.68 billion outstanding at the beginning of 2010. The outstanding debt balance decreased by $1.89 billion from the end of the third quarter to $20.89 billion, and by $2.68 billion from the beginning of the year. The yearly decrease in outstanding amount is due to the $700.98 million net decrease in the ABS market and the $1.98 billion net decrease in the ABCP market.

In order to provide investors timely and insightful analysis, DBRS monitors each class of all credit card transactions on a monthly basis, focusing on the key performance metrics of securitization portfolios in recent months and, if appropriate, revising base-case assumptions and performing stress testing under various scenarios.

Copies of the index are available at www.dbrs.com or by contacting us at info@dbrs.com.

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

The applicable methodology is DBRS Criteria for Canadian Credit Card Securitization, which can be found on our website under Methodologies.

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