Credit Card Performance Worsened
in Second Quarter

In contrast to the improving picture in mortgage markets reported in the previous article, continued fallout from the recent economic downturn is evident in the credit card segment of the industry. According to Moody's Investors Services, in the second quarter of 2003 the percent of bank credit card loans written off as uncollectible rose to approximately 7.0% and matched the highest quarterly level in the 14-year history of the index. Chargeoffs in July 2003 were also up, by 61 basis points from the same month one year earlier. The chargeoff rate is calculated as the dollar amount of loans written off as uncollectible, as an annualized percentage of total dollars of loans outstanding. These data derive from Moody's Credit Card Indexes which track the performance of $384 billion of securitized bank credit card receivables.

Delinquencies in the July, 2003 rose to 5.09%, up 11 basis points from a year earlier. Delinquencies are calculated as the proportion of account balances for which a monthly payment is more than 30 days late, as a percentage of total balances. Portfolio yield (annualized percentage of income, primarily finance charges and fees, collected during the month as a percent of total dollars outstanding) fell to 17.14%, down 88 basis points from a year earlier. Moody's reports that portfolio yield has fallen on a year-over-year basis for the past two years, hitting a record low of 16.5% in April, 2003. It attributes most of the decline to the current low interest rate environment, coupled with continued aggressive use of teaser rate offers in marketing new accounts.

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