OREANDA-NEWS. Credit card ABS performance metrics indicate a gradual shift up from recent historical lows toward normalized levels, according to Fitch Ratings. This modest performance deterioration was anticipated and remains well within our expectations. Overall borrower credit profiles continue to improve, and Fitch does not expect the observed metrics to pose any imminent impact to outstanding ratings in the foreseeable future.

Rising consumer revolving debt along with general softness in the economy has had little material effect on performance trends to date. While overall consumer credit reported by the Federal Reserve grew at a seasonally adjusted annual rate of 6.25% with revolving credit increasing $48.8 billion, or 5.4% over the same period, job growth has strengthened borrower positions and helped improve credit profiles. The most recent four-week average jobless claims reported by The Bureau of Labor Statistics were lower at 253,000 for the week of July 16, nearing a 43-year low.

Credit card delinquencies, which measure late payments and are a future predictor of chargeoff rates, continue to hover near-record lows. Over the past 12 months, payments 60 days past due as calculated by Fitch's Prime Credit Card Index averaged 1%, with the most recent data points showing slight improvement. This performance indicates a low probability of chargeoffs rising too rapidly any time in the near future. A credit card receivable is counted as charged-off when 180 days have passed since the borrower's last minimum payment and the debt is considered uncollectable.

Fitch continues to monitor ongoing performance trends through its surveillance efforts. Fitch's Prime Credit Card Chargeoff Index in June rose a nominal three bps to 2.81%. This compares with a 12-month average of 2.66%, with overall performance remaining well below the 2009 peak of 11.52%. Chargeoffs ended the second quarter at 2.82% and the first half of 2016 roughly 6.5% higher than through the first six months of 2015.

Any deterioration in underwriting standards could translate into weaker ABS metrics. However, whether the normalization in chargeoff rates is due to a shift in underwriting or a change in consumer's ability to repay loans remains to be seen. A recent article from the Wall Street Journal indicated the percentage of Americans with subprime credit scores fell to its lowest level since 2005, a sign that bodes well for credit card lending.