The performance of Canadian credit card debt continued to deteriorate in the fourth quarter of 2008, with charge-off rates reaching record levels, Moody’s Investors Service said Tuesday.

Although the performance of credit card debt is strong in Canada relative to that in the United States and United Kingdom, the rising losses are significant in relationship to the amount of credit enhancement in some Canadian credit card securitizations, says Moody’s in its latest Credit Card Indices for Canada.

“If losses continue to rise at a rapid pace, and other key metrics such as payment rate and yield begin to weaken, then the ratings on some Canadian card-backed transactions, especially the lower-rated subordinate tranches, would face downward pressure,” says Sumant Inamdar, Moody’s vice president

Moody’s expects charge-offs and delinquencies to continue to rise at a pace unprecedented for the Canadian market, given the expectation that the unemployment rate will rise further, though the absolute level of losses will remain well below those in the U.S. or U.K.

In the fourth quarter, the Canadian charge-off rate rose to 3.60%, up approximately 30% from the rate a year ago, 2.77%. This marks the eighth consecutive quarter of year-over-year increase in this index, and is a record high charge-off rate. By comparison, the quarterly charge-off rate index, as tracked by Moody’s U.S. Indices, climbed to 7.18% for thefourth quarter, from 4.98% a year earlier (up nearly 45%), and the U.K. charge-off rate index also deteriorated, to 6.58% from 6.40% in the fourth quarter a year earlier.

The fourth quarter 2008 delinquency rate in Canada, which measures the proportion of account balances for which monthly payment is more than 30 days past due, rose to 2.58% from 2.37% the previous year. The quarterly U.S. total delinquency rate index is now more than twice the Canadian measure, having climbed to 5.25% in the fourth quarter from 4.26% during the same period the previous year. The U.K. index was measured at 6.64%, which is a marked rise from the 5.89% of the previous year.

The payment rate — a measure of a cardholder’s willingness and ability to repay their credit card debt –fell slightly for a second consecutive quarter, to 31.46% from 32.98%. Canadian credit card debt has traditionally shown high payment rates, a positive for credit quality. Fourth quarter payment rates, as measured by Moody’s Indices, fell to 16.36% (from 18.30%) in the U.S. and to 16.47% (from 17.52%) in the U.K.

The gross yield index for the fourth quarter was 13.25% in Canada, a marginal rise from the year-earlier rate of 13.15%. By comparison, the U.S. Index showed a fourth quarter yield of 17.42% (down from 20.01%) and the U.K. Index was 19.97% (up from 19.87%).

Moody’s Canadian Credit Card Indices are composed of owned and managed portfolios of Visa and MasterCard issuers in Canada totaling approximately $68.4 billion, or over 80% of the total aggregate Visa/ MasterCard balances outstanding.

IE