Credit Card Charge Offs Tick Up but Yields Remain Strong: S&P

Credit card portfolios were generally strong throughout 2007, though there was a trend late in the year to higher charge offs and delinquencies, according to Standard & Poor’s U.S. Credit Card Quality Index (CCQI) for December 2007.

The yield on the portfolio was 20.0 percent in December, down 20 basis points from November, but up from 18.8 percent at the same time in the previous year. Yield measures the income generated on an annualized basis as a percent of receivables in the pool.

The CQQI tracks a pool of $436.6 billion in credit card receivables, representing about two-thirds of total bank card receivables outstanding.

The charge off rate for December rose to 4.9 percent of receivables, up from 4.7 percent in November and 4.2 percent in December 2006. S&P reports it expects the charge off rate to continue rising to its historic rate of 5.4 percent. The rate has been unusually low following the implementation of federal bankruptcy law changes in October 2005.

S&P projects loss rates will return to historic levels of 6.0 percent to 6.5 percent this year.

The 30-day delinquency rate rose to 4.3 percent in December 2007, from 4.2 percent in November, and up from 3.8 percent in December 2006. The 60-day delinquency rate came in at 3.0 percent, a 50 basis point rise from the 2006 average of 2.5 percent. The 90-day delinquency rate was 2.0 percent, 40 basis points higher than the 1.6 percent average for 2006.

The payment rate increased 30 basis points from November to 19.4 percent in December. The payment rate, measuring total monthly collections of principal and finance charge payments, has been flat over the last two years, S&P reported.