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Credit card charge-off rates are on track to surpass historic highs of about 7% of total loans outstanding, according to a recent Moody's Investors Service Inc. report. The authors of the report, which relies on Moody's most-recent credit card-performance data, did not speculate on when the historic high might occur. Moody's says the credit card charge-off rate for May rose to 6.41%, up 173 basis points from 4.68% a year earlier. The credit card charge-off rate peaked at just more than 7% during the last two economic slow-downs in 1991 and 2001, Moody's said. The credit card delinquency rate–the proportion of account balances in which a monthly payment is more than 30 days late–increased by 79 basis points, to 4.47% from 3.68% in May 2007. The payment rate–the average amount borrowers paid back on their credit card debts–fell to 18.6%, a 95 basis-point decline from 19.55%. Yield–the income issuers collect during the month as a percentage of total card loans–fell 99 basis points, to 18.16% from 19.15%. Excess spread, a key measure of the health of the credit card asset-backed securities market, also declined in May. One-month excess spread–calculated by subtracting loan expenses, servicing fees and charge-offs from the yield–dropped 51 basis points, to 7.09% from 7.6%. But Moody's said excess spread remains relatively high compared with the long-term average excess-spread margin of 5.82%. Moreover, the credit card securitization market is poised to absorb "substantial further deterioration" in charge-offs and overall loan performance before it risks becoming unprofitable, according to the report.
