Summary
Overview
- The interactive version of this report is available at www.spratings.com (free of charge). This includes interactive charts to capture data on total delinquencies, payment rates, and charge-off rates for U.K. and European credit cards collateral.
- Quarter-on-quarter charge-off rates for the continental European index increased while the U.K. index rates decreased.
- At the time of publication, we have only received two monthly performance reports (for July and August 2022).
- We took no rating actions this quarter.
- The U.K. payment rate increased to 33.7% from 32.3%, and the continental payment rate increased to 27.7% from 26.7%.
- Net spread increased in the U.K. index, to 12.5% from 11.4%. Net spread decreased in the European index, to 14.1% from 15.3%.
U.K.
- Charge-offs in our U.K. credit card ABS index decreased quarter-on-quarter to 2.8% from 3.1%. Gracechurch's charge-off rate was 3.1%, marginally lower than its 12-month average of 3.3%. The Delamare transaction incurred a charge-off rate of 2.1%, on par with its 12-month average of 2.1%. Penarth's charge-off rate was 2.0% compared with a 12-month average of 2.3%. Oban Cards' annualized charge-off rate was 12.6%, compared to its 12-month average of 12.3%.
- Total delinquencies decreased marginally quarter-on-quarter to 1.4%.
- The yield rate increased to 15.3% from 14.5% quarter-on-quarter.
- Delinquencies in the Oban Cards transaction exceeded its U.K. peer transactions because, unlike the other transactions, Oban Cards targets non-prime obligors.
- Net spread (the difference between the yield rate and charge-off rate) increased quarter-on-quarter to 12.5% from 11.4%.
- Given our base-case economic outlook, expected inflation, rising interest rates, and increased living costs, we expect U.K. credit card performance to deteriorate over the next 12-24 months, which we reflect in our base-case performance assumptions.
Continental Europe
- Charge-offs in our European credit card ABS index increased by 180 basis points (bps) quarter-on-quarter to 2.8%. This is on the level of first quarter of the year, the drop in the last quarter was mainly due to the support of the originator in the Columbus transaction.
- In other transactions, charge-off rates have remained stable (MCCP 0.8%, Ginkgo 3.2%, Swiss Cards 0.9%, and Oneycord 2.0%--all within a range of less than 30 bps of their respective 12-month averages).
- Total delinquency rates in our European credit card ABS index remained stable at 1.7%.
- Yield rates decreased to 16.8% from 16.9%, and the payment rate increased to 27.7% from 26.7%.
- Charge-off rates are generally higher for Spanish and French credit card programs than Swiss programs we rate.
- Yield rates are generally lower in France, partly due to a legal cap imposed on the rate that a lender can charge on these products ("taux d'usure"). Yield rates are generally higher in the Spanish credit card programs compared with the rest of the region.
- High payment rates in Switzerland show that the country's attitude toward consumer credit appears to be an outlier relative to its European peers.
- In France, payment rates tend to be low as, subject to stringent rules, the full repayment of a loan may happen over a defined maximum period.
- French and Spanish credit card programs have typically much lower payment rates because most clients are revolvers, drawing on their accounts and repaying the minimum installment each month, and because of the minimum instalment under the respective laws.
- In our analysis of revolving credit cards in Spain, we have already considered the enforceability of the receivables relating to the usury rate, and our current assumptions are accounting for this risk factor. We anticipate that yields in Spanish transactions will decline due to usury rulings.
- Given our base-case economic outlook, expected inflation, rising interest rates, and an increase in living costs, we expect European credit card performance to deteriorate over the next 12-24 months, which we reflect in our base-case performance assumptions.
Table 1
Key Performance Indicators: U.K. | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index (%) | Q3 2022† | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | |||||||
Total delinquency rate* | 1.4 | 1.5 | 1.5 | 1.5 | 1.6 | |||||||
Charge-off rate* | 2.8 | 3.1 | 3.1 | 3.1 | 3.8 | |||||||
Payment rate* | 33.7 | 32.3 | 30.8 | 31.4 | 30.2 | |||||||
Yield rate* | 15.3 | 14.5 | 15.0 | 16.6 | 22.3 | |||||||
Net spread* | 12.5 | 11.4 | 11.8 | 13.5 | 18.5 | |||||||
Economic data | ||||||||||||
Unemployment rate (%)§ | 3.5 | 3.7 | 3.8 | 4.0 | 4.3 | |||||||
Individual insolvencies§ | Not available | 28,946 | 32,305 | 27,668 | 26,936 | |||||||
Y-O-Y GDP growth§ | Not available | 2.9 | 8.7 | 6.6 | 6.9 | |||||||
*The quarterly performance data reflects the three-month average performance during the quarter, rather than the value as of quarter-end. For example, the data for first quarter reflects the average performance for January, February, and March, rather than the value for March alone. §Office for National Statistics, England, and Wales, not seasonally adjusted. †Q3 data indicates two previous months available data. Y-O-Y--Year on year. Source: S&P Global Ratings. |
Table 2
Key Performance Indicators: Continental Europe | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Index (%)* | **Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | |||||||
Total delinquency rate | 1.7 | 1.7 | 1.7 | 1.5 | 1.3 | |||||||
Charge-off rate | 2.8 | 1.0 | 2.9 | 2.1 | 1.4 | |||||||
Payment rate | 27.7 | 26.7 | 26.6 | 26.8 | 23.7 | |||||||
Yield rate | 16.8 | 16.9 | 16.8 | 17.4 | 16.5 | |||||||
Net spread | 14.1 | 15.3 | 14.0 | 15.1 | 15.3 | |||||||
Unemployment rate (%) | ||||||||||||
France§ | N/A | 7.1 | 7.5 | 7.6 | 7.9 | |||||||
Spain§ | N/A | 12.5 | 13.7 | 13.3 | 14.6 | |||||||
Switzerland† | 1.9 | 2.0 | 2.4 | 2.6 | 2.6 | |||||||
Y-O-Y GDP growth | ||||||||||||
France§ | N/A | 4.2 | 4.7 | 5.1 | 3.6 | |||||||
Spain§ | N/A | 6.8 | 6.7 | 6.6 | 4.2 | |||||||
Switzerland† | N/A | 3.7 | 3.8 | 8.6 | 0.3 | |||||||
*The quarterly performance data reflects the three-month average performance during the quarter, rather than the value as of quarter-end. For example, the data for first quarter reflects the average performance for January, February, and March, rather than the value for March alone. Sources: §ECB/Eurostat, †State Secretariat for Economic Affairs (SECO), as of Oct 29. S&P Global Ratings. **Q3 data indicates two previous months available data. Y-O-Y--Year on year. N.A.--Not available. |
Table 3
Scenarios For U.K. And European Credit Card ABS Collateral | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual | Forecast | |||||||||||||
2021 | 2022F | 2023F | 2024F | 2025F | Baseline effect on collateral credit quality | |||||||||
Real GDP (%) change | ||||||||||||||
U.K. | 7.4 | 3.3 | (0.5) | 1.4 | 1.6 | Neutral | ||||||||
France | 6.8 | 2.4 | 0.2 | 1.8 | 1.5 | Neutral | ||||||||
Spain | 5.1 | 4.5 | 1.1 | 2.1 | 2.6 | Somewhat Favorable | ||||||||
Switzerland | 3.7 | 2.4 | 1.1 | 1.6 | 1.4 | Somewhat Favorable | ||||||||
Unemployment rate (%) | ||||||||||||||
U.K. | 4.5 | 3.7 | 4.5 | 4.3 | 3.8 | Somewhat Favorable | ||||||||
France | 7.9 | 7.5 | 7.7 | 7.6 | 7.5 | Somewhat Unfavorable | ||||||||
Spain | 14.8 | 12.8 | 12.9 | 13.1 | 13.0 | Somewhat Unfavorable | ||||||||
Switzerland | 5.1 | 4.3 | 4.1 | 3.9 | 4.0 | Neutral | ||||||||
U.K. CPI inflation (%) | 2.6 | 9.5 | 5.8 | 1.6 | 1.7 | Unfavorable | ||||||||
Bank of England policy rate Q4 average (%) | 0.17 | 2.73 | 3.17 | 2.50 | 2.50 | Unfavorable | ||||||||
ECB policy rate Q4 average (%) | 0.00 | 0.83 | 1.75 | 2.00 | 2.00 | Unfavorable | ||||||||
Swiss National Bank policy rate Q4 average (%) | -0.75 | 1 | 1.5 | 1.5 | 1.5 | Unfavorable | ||||||||
CPI--Consumer price index. Sources: Oxford Economics, S&P Global Ratings. |
U.K. ABS Credit Card Focus
Chart 1
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Table 4
Issuers Versus The Index - August 2022 | ||||||
---|---|---|---|---|---|---|
Outstanding amounts (million £) | Trust as percentage of U.K. index (%) | Yield rate (%) | Payment rate (%) | Charge-off rate (%) | Total delinquency rate (%) | |
U.K. Index | 19,153 | 15.2 | 34.8 | 2.8 | 1.4 | |
Delamare | 3,034 | 15.8 | 12.1 | 50.2 | 2.2 | 2.4 |
Gracechurch | 8,697 | 45.4 | 16.0 | 31.0 | 3.1 | 1.0 |
Penarth | 6,901 | 36.0 | 14.3 | 34.3 | 2.0 | 1.1 |
Oban Cards | 521 | 2.7 | 30.8 | 15.9 | 12.3 | 5.8 |
Table 5
Performance Against Base-Case Assumptions | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Charge-off rate (%) | Yield rate (%) | Payment rate (%) | ||||||||||||||||||
Trust | 12-month average | Three-month average | Base case* | 12-month average | Three-month average | Base case* | 12-month average | Three-month average | Base case* | |||||||||||
Delamare | 2.1 | 2.1 | 6.0 | 11.6 | 11.5 | 8.0 | 45.7 | 47.6 | 25.0 | |||||||||||
Gracechurch | 3.3 | 3.1 | 7.5 | 16.2 | 16.9 | 13.5 | 28.3 | 30.5 | 15.0 | |||||||||||
Penarth | 2.3 | 2.0 | 6.5 | 14.7 | 13.9 | 13.5 | 32.0 | 33.1 | 17.0 | |||||||||||
Oban Cards | 12.3 | 12.6 | 20.0 | 31.1 | 30.3 | 32.0 | 15.2 | 15.4 | 12.0 | |||||||||||
*In our analysis, we subject base case rates to stresses, haircuts, and lagging. For the yield rate, these values cannot be directly compared with our base-case assumptions because they include interchange, which we do not give credit for in our analysis. |
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
Continental Europe ABS Credit Card Focus
Chart 9
Chart 10
Table 6
Issuers Versus The Index - August 2022 | ||||||
---|---|---|---|---|---|---|
Trust | Outstanding amount (mil. €) | Trust as percentage of index (%) | Yield rate (%) | Payment rate (%) | Charge-off rate (%) | Total delinquency rate (%) |
EMEA Index | 3,316.7 | 16.8 | 26.6 | 1.6 | 1.7 | |
Gingko | 697.4 | 21.0 | 7.7 | 5.7 | 3.2 | 1.9 |
MCCP | 453.1 | 13.7 | 13.3 | 5.0 | 0.9 | 0.5 |
Columbu§ | 628.0 | 18.9 | 19.4 | 7.5 | 9.0 | 2.0 |
Oneycord | 740.1 | 22.3 | 13.5 | 8.7 | 1.9 | 2.6 |
Swiss Cards | 798.0 | 24.1 | 27.9 | 89.9 | 0.9 | 1.0 |
Table 7
Performance Against Base-Case Assumptions | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Charge-off rate (%) | Yield rate (%) | Payment rate (%) | ||||||||||||||||||
Trust | 12-month average | Three-month average | Base case* | 12-month average | Three-month average | Base case* | 12-month average | Three-month average | Base case* | |||||||||||
Columbus | 3.6 | 7.0 | 10.0 | 19.0 | 19.1 | 18.5 | 7.1 | 7.5 | 4.4 | |||||||||||
Ginkgo | 3.0 | 3.2 | 7.8 | 7.8 | 7.7 | 7.8 | 7.2 | 10.7 | 2.0 | |||||||||||
MCCP | 1.1 | 0.8 | 7.5 | 13.5 | 13.2 | 13.5 | 5.9 | 5.4 | 2.0 | |||||||||||
Oneycord | 1.8 | 2.0 | 9.0 | 13.5 | 13.3 | 13.5 | 8.5 | 8.7 | 8.0 | |||||||||||
Swiss Cards | 0.9 | 0.9 | 3.5 | 27.9 | 27.7 | 8.0 | 84.2 | 86.4 | 32.0 | |||||||||||
*In our analysis, we subject base-case rates to stresses, haircuts, and lagging. |
Chart 11
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Chart 14
Chart 15
Chart 16
Summary Of Methodology For Our European And U.K. Credit Card ABS Index
What is it included in the U.K. and European ABS credit card index?
Unlike auto and RMBS indexes, a transaction is included since the closing date. This is because we do not expect a transaction's performance to change materially, due to the short-term nature of the receivables. As the index is current balance weighted, and the transactions are revolving master trusts, the transactions do not change as of closing. We have differentiated between European and U.K. transactions due to their different regulatory regimes, currency denominations, and other characteristics.
What is the data source?
Data is compiled from investor reports and as such is based on each deal's definition of arrears and default.
Is it loan count or "dollar" weighted index?
The index is calculated as the current balance of receivables in each arrear status (as reported in investor reports), divided by the current balance of each transaction (as reported in investor reports). Non-euro denominated transactions are converted to euro.
When a transaction redeems how does it affect the index? Does it affect the past quarter(s)?
When a transaction redeems it does not contribute to the index beyond that point. It has no effect on reported values for previous quarters.
When do we cut off the index for a given quarter?
The cut off is based on the period covered in investor reports. For example, if the index is up to Q4 2021, only collateral data until Dec. 31, 2021 is included.
Why do prior quarter's numbers sometimes change?
There are two main reasons:
- Data can be amended by the servicer/party providing the investor report.
- Newer data for the most recent quarter is available.
Glossary
Delinquency rate
Delinquency data are a leading indicator for the underlying proportion of accounts that roll through the delinquency categories before the debt is charged off. A high proportion of 90+ day delinquencies will typically roll through to charge-off within three months, and so delinquencies, and especially 90+ day delinquencies, are a good indicator of how the charge-off index might perform.
Charge-off rate
We define charge-offs as losses on principal receivables divided by the pool balance at the beginning of the month, which is annualized and expressed as a percentage. They are effectively gross losses.
Payment rate
We define the payment rate as the total collections received in a particular month divided by the pool balance at the beginning of the month, expressed as a percentage. In our view, a high payment rate is beneficial for the transaction as during the amortization period the note principal is paid down more quickly, meaning noteholders are exposed to losses for a shorter period.
Yield rate
We define yield as finance charge and fee income in a particular month divided by the pool balance at the beginning of the month, annualized and expressed as a percentage. We believe high-yield is beneficial for the transaction, as it means a higher income to offset any losses and pay the interest on the notes.
Net spread
We define net spread as three-month average yield rate minus three-month average charge-off rate.
Related Criteria And Research
- EMEA Structured Finance Chart Book, Oct. 12, 2022
- Cost Of Living Crisis: Despite Pockets Of Weakness, European Consumer ABS Shows Structural Resilience, Oct. 6, 2022
- Economic Outlook U.K. Q4 2022: Under The Pump, Oct. 3, 2022
- Credit Conditions Europe Q4 2022: Hunkering Down For Winter, Sept. 27, 2022
- Economic Outlook Eurozone Q4 2022: Crunch Time, Sept. 26, 2022
- U.K. RMBS And ABS LIBOR Transition: Beware Of Early Success, Sept. 5, 2022
- European Structured Finance Market Accelerates Transition From LIBOR, Feb. 9, 2021
- ESG Credit Factors In Structured Finance, Sept. 19, 2019
- European Credit Card ABS: Assessing The Credit Effects Of COVID-19, April 9, 2020
- European ABS And RMBS: Assessing The Credit Effects Of COVID-19, March 30, 2020
- COVID-19 Will Batter Global Auto Sales And Credit Quality, March 23, 2020
- 2017 EMEA ABS Scenario And Sensitivity Analysis, July 6, 2017
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- Revised Rating Approach Effective For European Credit Card ABS, July 11, 2016
- How We Rate And Monitor EMEA Structured Finance Transactions, March 24, 2016
- Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized Consumer Receivables, Oct. 9, 2014
- Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 9, 2014
- Scenario Analysis: Charge-Off And Payment Rate Movement May Determine Downgrades In European Credit Card Sector, May 12, 2009
This report does not constitute a rating action.
Primary Credit Analyst: | Sebastian Mauersberger, Frankfurt + 49 1729 913944; sebastian.mauersberger@spglobal.com |
Secondary Contacts: | Doug Paterson, London + 44 20 7176 5521; doug.paterson@spglobal.com |
Florent Stiel, Paris + 33 14 420 6690; florent.stiel@spglobal.com |
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