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Moody's: US credit card charge-offs surpass 10% in May


New York, June 24, 2009 -- Charge-offs on US credit cards as measured by Moody's Credit Card Index broke through the 10% level in May, for the first time in the 20-plus year history of the Moody's Index.

"We expect the charge-off rate index to continue to rise in the coming months but at a slower pace, as it peaks at around 12% in the second quarter of 2010," says Moody's Senior Vice President William Black.

The charge-off rate measures those credit card account balances written off as uncollectible as an annualized percentage of total outstanding principal balance. It is the sixth consecutive month the charge-off rate has attained a record high.

Moody's Credit Card Index is based on the credit performance of approximately 300 individual credit-card-backed securities rated by Moody's, covering approximately $410 billion of bank credit card receivables.

The Index also shows the delinquency rate (monthly payments more than 30 days late) declining for the second month in a row in May, to 5.97%. Moody's views the improvement as an expected seasonal phenomenon arising from it being the tax refund season and expects delinquencies to resume their upward trend.

The May Index also shows payment rates slipping for the second consecutive month, to 16.01%. A key factor, along with charge offs, in assessing the credit quality of credit card securitizations, the payment rate is the average amount of principal that cardholders pay each month as a percentage of the total outstanding principal balance

According to Black, "We expect industry-wide payment rates to remain soft due, in part, to lower purchase volumes among those cardholders who use their credit cards for convenience - those who pay off their entire balances each month."

Moody's yield index rebounded from last month's sharp decline, returning above the 18% level and reflecting discounting initiatives by Citibank and Bank of America. However the increase was not enough to keep excess spread levels from falling below the 5% level for the first time since 1998.

Moody's latest credit card index report, "Credit Card Index Charge-Offs Surpass 10% in May," is available on Moodys.com