U.S. Structured Finance Newsletter – March 28, 2017
Subprime Credit Cards Are On The Rise
Jayce Fox
Vice President
ABS Structured Finance
+1 212 806 3261
[email protected]
Lain Gutierrez
Senior Vice President, ABS
Structured Finance
+1 212 806 3922
[email protected]
Jerry van Koolbergen
Managing Director
Structured Credit
+1 212 806 3260
[email protected]
Sergey Moiseenko
Senior Vice President
ABS Structured Finance
+1 212 806 3225
[email protected]
Chris O’Connell
Senior Vice President
ABS Structured Finance
+1 212 806 3253
[email protected]
Jon Riber
Senior Vice President
ABS Structured Finance
+1 212 806 3250
[email protected]
Quincy Tang
Managing Director
RMBS Structured Finance
+1 212 806 3256
[email protected]
Kathleen Tillwitz
Managing Director
Operational Risk,
ABS/RMBS Structured Finance
+1 212 806 3265
[email protected]
Exhibit 1: Credit Card Balances ($ Billions) - All Borrowers
$1,000.0
$900.0
$800.0
$700.0
$600.0
$500.0
$400.0
$300.0
$200.0
$100.0
$-
Exhibit 2: Outstanding Credit Card Balances & Available
Credit ($ Billions) - All Borrowers
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$-
Q1 1999
Q3 1999
Q1 2000
Q3 2000
Q1 2001
Q3 2001
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Chris D’Onofrio
Senior Vice President, ABS
Structured Finance
+1 212 806 3284
[email protected]
Cr edit C ard Balan ce
Source: Federal Reserve Bank of New York.
Cr edit C ard Available Cred it
As shown in Exhibits 3 and 4, the number of new accounts opened in the previous
24 months rose nearly 11% year over year (YOY) in Q3 2016, reaching approximately
87 million (according to American Bankers Association). Subprime account openings
were the fastest growing segment, reaching 27 million. As a percent of total credit
card accounts, subprime borrowers have reached approximately 21%, or roughly 71
million accounts. This is still below pre-recessionary levels, which saw subprime
credit cards making up nearly a third of total accounts. Nevertheless, levels are higher
than the 18% of total accounts subprime borrowers made up in 2013/2014. While
seeing negative growth between 2009 and 2013, the number of subprime accounts as
a percent of total accounts saw positive YOY growth, with 2016 seeing double-digit
growth (see Exhibit 5).
Exhibit 3: Number of New Accounts (Millions)
100
90
80
70
60
50
40
30
20
10
0
Exhibit 4: Number of Total Accounts (% of Total)
60%
50%
40%
30%
20%
10%
Super Prime
Prime
Subprime
0%
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Mike Babick
Senior Vice President
ABS Structured Finance
+1 212 806 3229
[email protected]
Q1 1999
Q3 1999
Q1 2000
Q3 2000
Q1 2001
Q3 2001
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Claire J. Mezzanotte
Group Managing Director
Global Structured Finance
+1 212 806 3272
[email protected]
Credit card balances and limits are approaching the pre-recession levels last seen
in 2007. Outstanding credit card balances as of Q4 2016 reached $779 billion, while
credit card limits reached $3,346 billion (see Exhibits 1 and 2). Nevertheless, this is
still below the peaks seen in 2008 of $866 billion and $3,700 billion for outstanding
balance and credit limits, respectively. Part of the reason that credit usage is growing
is due to a loosening of lending standards by credit card lenders. This is particularly
noticeable when looking at subprime borrowers, who have been seeing positive
growth in the total number of credit card accounts for the past few years.
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Contacts
Super Prime
Prime
Subprime
Source: American Bankers Association.
Chuck Weilamann
Managing Director
ABS Structured Finance
+1 212 806 3226
[email protected]
DBRS.com
1
U.S. Structured Finance Newsletter – March 28, 2017
Subprime Accounts [L]
YOY Growth of Subprime [R]
YOY Growth
Q3 2016
Q2 2016
Q1 2016
Q4 2015
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
-20.00%
Q2 2011
-15.00%
0
Q1 2011
-10.00%
10
Q4 2010
-5.00%
20
Q3 2010
0.00%
30
Q2 2010
5.00%
40
Q1 2010
50
Q4 2009
10.00%
Q3 2009
15.00%
60
Q2 2009
20.00%
70
Q1 2009
25.00%
80
Q4 2008
30.00%
90
Q3 2008
100
Q2 2008
# of Accounts (Millions)
Exhibit 5: Number of Subprime Account & Percent of Total Account vs. Quarterly YOY Change
Subprime Accounts as a % of Total Accounts [R]
Source: American Bankers Association.
Even with the growth of subprime credit card accounts, performance of credit card pools have been continuously improving. As
seen in Exhibit 6, seriously delinquent (90+ days) credit card balances have been steadily declining, reaching 7.14% of the total
outstanding credit card balance as of Q4 2016. This is down from a peak of 13.74% seen in Q2 2010 and approaching levels last
seen before the turn of the century.
Exhibit 6: Percent of Credit Card Balance 90+ Days Delinquent
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
Q2 2016
Q3 2015
Q4 2014
Q1 2014
Q2 2013
Q3 2012
Q4 2011
Q1 2011
Q2 2010
Q3 2009
Q4 2008
Q1 2008
Q2 2007
Q3 2006
Q4 2005
Q1 2005
Q2 2004
Q3 2003
Q4 2002
Q1 2002
Q2 2001
Q3 2000
Q4 1999
Q1 1999
0.00%
Source: Federal Reserve Bank of New York.
The improving performance in credit card pools can be partially attributed to the Credit Card Accountability Responsibility and
Disclosure Act of 2009 (CARD Act). The CARD Act led to a reduction in back-end fees and re-pricing actions by lenders while
also providing greater transparency on costs for consumers. Consumer behavior is also a driver of improving performance, as
the share of borrowers that carry a monthly balance on their cards has decreased since the Great Recession. However, the share
of account holders who carry a monthly balance rose 0.8% to 43.3% of all accounts in Q3 2016, near a four-year high but still
well below levels from 2009 to 2012 (according to American Bankers Association). Part of this can be attributed to the growth of
subprime accounts, which typically have smaller credit limits but higher utilization rates that can be in the 80% to 90% range.
U.S. Structured Finance Newsletter – March 28, 2017
If improvements in broader economic trends continue, DBRS expects continued growth in new credit card accounts, particularly
within the subprime sector. This growth could possibly lead to deteriorating trends in credit card delinquencies and chargeoffs. However, since credit card asset-backed securities performance was strong in 2016 with delinquencies and charge-offs
continuing the post-crisis trend, DBRS expects 2017 metrics to remain in line with historical lows.
For questions or comments, please contact Maxim Berger at [email protected].
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