Credit Card Charge-Offs Normalized in Early 2001.Business Editors NEW YORK--(BUSINESS WIRE)--Standard & Poor's March 20, 2001--Bank credit card charge-offs dropped 100 basis points (bps) in January 2001, returning to more normalized 2000 averages, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Standard & Poor's Credit Card Quality Indexes (see list). These indexes monitor the performance of approximately $345 billion in receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed held in trusts of publicly rated credit card-backed securities, which make up nearly two-thirds of the total bank card market. Issuers distributed January performance data on Feb. 15, 2001. The monthly charge-off rate decreased by 100 bps to 5.5% in January from 6.5% in December 2000, returning to levels more in line with year 2000 averages. The decrease in January followed an increase of 110 bps in loss rates in December. The increase in December was due mainly due to a policy change at MBNA MBNA Monument Builders of North America MBNA Mercedes-Benz North America MBNA Maryland Bank, National Association MBNA Maryland Bank North America MBNA Mount Baker Nurses Association (Bellingham, Washington) America Bank N.A. (MBNA). Without MBNA's policy change in charge-offs, last month's index numbers In economics, index numbers are time series summarising movements in a group of related variables. The best-known is the consumer price index which measures changes in retail prices paid by consumers. would have only increased modestly by 10 bps to an adjusted 5.5% December loss average. The January 5.5% charge-off rate also is only a 10 bp increase from November's 5.4% level. However, perhaps as sign of things to come, changes in consumer credit may be occurring. With a slowing economy and a further reported drop in consumer confidence, the delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. rate reported in January increased 20 bps to 4.9% from 4.7%. For most of 2000, delinquencies were under 4.5% but an increase in rates has occurred since November. The up-tick in delinquencies particularly for those loans in the 90 days or later bucket A reserved amount of memory that holds a single item or multiple items of data. Bucket is somewhat synonymous to "buffer," although buffers are usually memory locations for incoming data records, while buckets tend to be smaller holding areas for calculations. See hash table, buffer and variable. suggests that increases in charge-offs are likely in the upcoming months. Standard & Poor's expects that as the economy further slows, consumer loan portfolios will start to show signs of deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. . The loss rate in a slowing economy may be mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. somewhat if the Bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most Reform Bill passes, making it more difficult for consumers to file for personal bankruptcy Personal bankruptcy is a procedure which, in certain jurisdictions, allows an individual to declare bankruptcy. In other jurisdictions, bankruptcies are reserved for corporations. protection (Chapter 7). In other news, market consolidation continues. Wachovia Bank N.A. announced that they intend to sell their $8.1 billion card portfolio. The picture among the trusts tracked by the indexes was mixed. Fifteen trusts reported modest increases in their loss rates, and more positively, 21 reported declines in rates compared with last month's losses. For the major trusts (those with more than $5 billion in receivables), the news was even more positive. Ten of the 13 trusts reported declines in loss rates, and of the five largest master trusts, all reported lower losses. MBNA's reported losses moved to 4.7% from the one-time inflated number of 10.2% reported for December 2000 as a result of the changes in the company's charge-off policy. MBNA's number for January indicates that the increase was a one-time occurrence. MBNA's 2000 average loss rate (excluding the December 2000 figure) was 4.7%. The other performance variables tracked by the indexes were mixed as well but changed little compared with last month's figures. Average yield dropped by 8 bps. Excess spread reported a 150 bp increase to a healthy 6.3% level. The increase was due largely to the improvement in loss rates, but the average trust's base rate also declined. With the Federal Reserve cutting rates by 100 bps in January and with the expectation of more cuts to come at the next Federal Reserve meeting in March, issuers' cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. dropped 59 bps to 8.0%. Payment-rate trends show no signs of deterioration. Obligors continue to pay off their cards at a robust rate. In January 2001, payment rate increased over 100 bps to 16.7%, Standard & Poor's said. -- CreditWire STANDARD & POOR'S CREDIT CARD QUALITY INDEXES Distribution date 02/15/99 02/15/00 12/15/00 01/15/01 02/15/01 Performance month Jan 99 Jan 00 Nov 00 Dec 00 Jan 01 Outstandings (bil. $) 272.9 310.1 336.2 345.1 344.8 Yield (%) 19.4 19.1 19.4 19.9 19.8 Charge offs (%) 5.9 5.8 5.4 6.5 5.5 Weighted base rate (%) 7.1 7.8 8.4 8.6 8.1 Excess spread (%) 6.4 5.6 5.5 4.7 6.3 Delinquencies (%) 5.3 4.7 4.7 4.7 4.9 Payment rate (%) 16.3 16.3 15.67 15.3 16.7 |
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