Moody's Investors Service has come out with the latest confirmation of recent good news in key measures of credit card loan quality.
On the heels of an American Bankers Association report a week ago that delinquent credit card accounts were near a four-year low in the first quarter, Moody's data on securitized card portfolios also showed largely favorable trends.
The Moody's figures, on both delinquencies and chargeoffs, go back only five years, and the recent numbers generally do not match the lows of 1989-90. But they reflect the performance of the big issuers that dominate the industry, and have been falling consistently from comparable year-ago numbers.
If there is a downside, it is in the declining yields caused by fee and interest-rate reductions and a general intensification of competition.
Economy's Impact
Edward Bankole, the Moody's analyst in New York who maintains indexes on delinquencies, chargeoffs, and principal payment rates, also voiced concern about broader economic trends.
"As the economic recovery continues, we expect the aggregate chargeoff and delinquency rates to continue to decline moderately," Mr. Bankole said. "However, any further declines in chargeoffs and delinquencies depend in part on the trend in consumer bankruptcy filings and on the degree to which card issuers lower their underwriting standards in response to competitive pressures."
Mr. Bankole pointed out that the number of bankruptcy filings, which skyrocketed during the late 1980s and early 1990s, recently began stabilizing below their historical peaks.
Mr. Bankole's said the aggregate delinquency rate -- the percentage of month-end outstandings on which payments are at least a month overdue -- was 4.81% in March, down from 5.10% in February, 5.50% in March 1993, and Moody's 6.31% peak of January 1992. The figure had not fallen below 5% since May 1990.
Near 1990 Lows
The American Bankers Association report, based on responses by a broad base of member banks, showed 3.51% of card loan balances were at least 30 days past due on March 31. It was down from 3.64% at yearend 1993 and 3.98% in the 1993 first quarter. The last time the rate was below 3.5% was in the second quarter of 1990, at 3.46%.
As a percentage of loans, the card delinquency total was 2.54% in the first quarter, up slightly from 2.49% at yearend but down from 2.74% in March 1993. The ABA's credit card figure has not fallen as low and as consistently as a composite for other types of closed end consumer loans, which fell to a 20-year low of 1.74% in the first quarter.
Parallel Trend
Another cut of Moody's delinquency statistic, which it calls the "major issuer" index, has been falling parallel to the aggregate number. This is a straight average for pools backed by loans of the largest issuers of card-backed securities -- Citibank, First National Bank of Chicago, and MBNA America Bank -- and therefore is not subject to the market-share fluctuations that can affect the aggregate numbers.
For the major issuers, delinquencies stood at 4.55% in March, down from 4.74% in February, 5.13% in March 1993, and the record high 6.25% in January 1991.
The major issuers' chargeoff rates are below those in the aggregate index.
In March, the major issuer chargeoff rate, as a percentage of outstandings at the first of the month, was 4.39%, compared with the larger group's 4.45%. The numbers were considerably better than the 5.03% and 5.29%, respectively, a year earlier.
The three big securitizing banks' chargeoff total was up by six basis points from February to March, while the aggregate rate fell 10 basis points. But the Moody's analysts stress year-to-year comparisons.
The chargeoff rate peaked in June 1992 at 5.87% for the big issuers and 6.36% for the aggregate.
Card industry competition pushed the aggregate annualized yield on outstandings down for the 16th consecutive month, to 19.35%, from 21.05% in March 1993. Averaged over the First quarter, the yield was down to 19.12% from 20.42% in the 1993 period.
The yield declines have partly offset the improvements in credit quality, and Mr. Bankole said recent rises in interest rates may not stem the tide.
"Moody's believes it is unlikely that the aggregate yield on credit card loans will increase as much as the recent upturn in short-term market interest rates," Mr. Bankole wrote in his report.
Although more and more cards carry annual percentage rates, or APRs, that fluctuate with market rates, "competitive pressure and increased consumer sensitivity to interest rates could discourage card issuers from allowing their credit card APRs to rise," the report said.
Meanwhile, the continuing decline in the chargeoffs of uncollectible balances may ease pressure to raised the quoted interest rates.
"Although individual issuers will continue to employ different pricing strategies, Moody's expects that, in aggregate, any increase in credit card yield in response to the recent rise in market rates will be modest, at most," the rating firm said. "However, continued increases in short-term rates could eventually lead to further increases in credit card APRs."
The principal payment rate, a sign of how quickly consumers pay down their bills, has been rising in recent periods. The aggregate group reached 13.32% in March and the major issuers 13.48%, compared with 12.17% and 12.75% a year earlier.
Averaged over the quarter, the aggregate principal payment rate was 12.84%, down slightly from the fourth quarter's 13% but higher than the 11.99% of the first quarter, 1993.
The Moody's data are based on 64 of the more than 100 credit-card-backed securities rated by the New York-based agency. The sample covers $69 billion of bank card receivables, and all the securitized transactions have been outstanding for at least a year.
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