The pain inflicted by deteriorating economic and employment pictures continues to show up in the performance of credit card portfolios.

Moody’s Investors Service’s Canadian Credit Card Index continued to soften in the third quarter, the rating agency reported. It also said that with the Canadian consumer likely to face even harder times in the near future and rising unemployment, it expects the performance to weaken further.

“In the current environment, the historical strength that has been evident in the Canadian credit card portfolios backing asset-backed securitizations will be tested,” says Moody’s Sumant Inamdar, a Moody’s vice president and senior analyst. “Rising unemployment, bankruptcy filings and the fact that more recently originated credit card loans are yet to be tested in a cyclical downturn will certainly lead to higher delinquency and loss rates.”

The delinquency rate in Canada rose slightly in the third quarter, to 2.36% from 2.31% a year ago, although this is still notably less than the US’ 4.63% delinquency rate. Delinquency rates measure the proportion of the account balance for which monthly payment is more than 30 days past due.

At the same time, the Canadian payment rate in the third quarter fell slightly to 32.35% from 32.55% the previous year. The payment rate measures the cardholders’ willingness and ability to repay their credit card debt.

Meanwhile, Fitch Ratings reported that late payments on U.S. credit cards topped record levels and defaults rose sharply to just below all time highs last month as consumers struggled further amid the deteriorating economic environment. “U.S. consumers continue to struggle in the face of mounting pressures on multiple fronts from employment to housing to net worth,” said managing director Michael Dean. “While we expect these issues to further impact credit card ABS performance going forward, available credit enhancement and structural features help reduce the risk of widespread downgrades.”

Fitch also reported that late stage delinquencies continued to rise as well, with the Fitch’s 60+ day Index rising to a record 3.75%. The previous high was 3.73% in February 1997. Although late stage delinquencies were elevated throughout 2008, they escalated rapidly in fourth quarter-2008 by 18% to current levels, it noted.

IE