With consumers cutting back on spending, retailers are already feeling the pinch, but accelerated credit card defaults will only complicate matters, said Mike Dean, managing director for Fitch Ratings, which issues a monthly credit card report.
He said the latest report indicates as many a one in every eight credit card holders could default on their store-issued card.
The latest Fitch Retail Credit Card Index shows 60-plus day delinquencies have risen nearly 24% since August, reaching 4.8%. Fitch expects chargeoffs, or debts deemed uncollectable, to exceed 12% in first half 2009 from current levels of 9.1%. While in line with historical averages, the current charge off index is more than 40% above 2007 levels.
Despite the bleak forecast, Fitch said retail credit card portfolios remain healthy because higher interest rates charged to cardholders so far continue to stay ahead of the chargeoff levels experienced by the card issuers. Ratings outlooks are not expected to be downgraded anytime soon.
Fitch's Retail Credit Card index tracks more than $72 billion in principal receivables backing approximately $40 billion of retail or private label credit cards. The largest issuers in the index are Citibank Omni Master Trust and GE Private Label Master Trust.
Major retailers include Wal-Mart Stores Inc. (WMT, Fortune 500), Sears Holdings Corp. (SHLD, Fortune 500), Home Depot. Inc. (HD, Fortune 500), J.C. Penny Co. Inc. (JCP, Fortune 500) and Best Buy Co (BBY, Fortune 500).
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