Stress for Credit Card Industry Until 2010

Credit card charge-off rates in the U.S. continued to rise in August and are expected to surpass the peak rate of charge-offs following previous recessions, according to Moody's Investor Services.

The charge-off rate, which measures credit card balances written off as uncollectible as an annualized percent of loans outstanding, rose 48 percent in August to 6.82 percent, compared with 4.61 percent a year ago, said Moody's in a special report.

Moody's said it expects the industry to remain under pressure through the end of 2009 as a result of the worldwide economic crisis and worsening underlying collateral performance as the credit card asset-backed securities market shows signs of increasing stress.

Although the balance sheet strength and liquidity of the sector’s largest credit card issuers remains quite strong, the uncertainty and tempo of the turmoil will test even the stalwarts’ ability to adapt.

In its mid-year report released last month, Moody's forecasted the sharp deterioration in credit card delinquency and charge-off rates. Earlier this month, Standard and Poor?'s highlighted the worsening performance in August of credit card ABS.

For details, see Credit Card Sector Faces Challenging Period Ahead.