Mar 20 , 2010

Canadian credit card market to stabilize in 2010 – Moody’s

By Robin Arnfield, News Editor

TORONTO--A report by Moody’s Investor Service says that the Canadian credit card sector, which finished 2009 at historically poor performance levels, will return to stability in 2010. The New York-based credit ratings agency says that Canada’s unemployment rate and personal bankruptcy filings – two key drivers of credit card performance – have recently demonstrated signs of stabilization.

The state of the Canadian economy will dictate the pace and timing of any improvement in the credit card sector, Moody’s says. “Furthermore, Canadians increased debt during the recession, and the risk of rising debt service ratios and mortgage refinancing risk from the recent surge in the housing market figures prominently in our post-recession concerns,” it says.

Because of this uncertainty, the outlook in the credit card sector remains negative, Moody’s warns.

Sumant Inarndar, Vice President and Senior Analyst at Moody’s in Toronto, says that in the first quarter of 2010 there have been improvements in both the Canadian unemployment rate and personal bankruptcy filings. “But unemployment and bankruptcies are still elevated,” he says.

Canadian credit card charge-offs reached a record-high of 4.92% in the third quarter of 2009, according to Moody’s Canadian credit card indices. The third quarter rate was, however, only slightly higher than the 4.80% recorded in the second quarter of 2009.

The delinquency rate index also rose on a year-over-year basis but, at 3.14%, was nearly flat to the second quarter rate of 3.10%. Often a harbinger for future trends in charge-offs, the delinquency rate index measures the proportion of account balances for which monthly payment is more than 30 days past due.

Other credit card performance metrics were mixed in the third quarter of 2009. The payment rate index was up over the second quarter, but at 30.29%, it remained about two percentage points lower than it was a year earlier. Likewise, the Net Yield index narrowed by a couple of percentage points to 8.07%, mostly due to elevated charge-offs compared to a year earlier.

Credit card performance in Canada continues to compare favorably to that in the US and UK, Moody’s says. Typically, chargeoffs in Canadian credit card portfolios are about half that in the US.

Moody’s will release its Canadian credit card indices for the fourth quarter of 2009 in April 2010.

Moody's Canadian credit card indices are composed of owned and managed portfolios of Visa and MasterCard issuers in Canada. As of September 30, 2009, it tracked the performance of approximately C$69.5 billion in receivables, or over approximately 80% of the outstanding Visa and MasterCard credit card receivables in Canada.



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