Q4 2013 Canadian Credit Card Issuer Snapshot

Navigator Edition: February 2014
By: Cara Weikel

In spite of continued concerns from the Bank of Canada and the Department of Finance regarding Canadian household debt burdens, a review of select Canadian credit card issuers’ performance1 in fiscal year 20132 reveals modest gains relative to the prior twelve-month period.  Quarterly average credit card receivables were up year over year, and charge-offs improved across the board.  Furthermore, Canadian credit card trust delinquencies (percent of balances 30+ days past due) continued to improve from 2.49% in Q4 2012 to 2.24% in the same period of 2013,3 suggesting that loss rates may continue to decline in the coming months.  Please see Figure 1 for portfolio metrics by issuer and Figure 2 for a summary of the aggregated delinquencies for Canadian credit card trusts.

Figure 1: Canadian Credit Card Performance Metrics for Select Issuers1


Note: 1 Data is exclusive to Canadian credit card portfolios; international receivables are excluded. Desjardins reported credit card receivables together with other consumer and personal loans, and was therefore excluded from analysis.
2 Includes TD’s December 2011 acquisition of MBNA Canada’s credit card business.
3 Includes TD’s August 2013 acquisition of HSBC Retail Services Limited private label credit card portfolio.
4 TD, BMO, BNS, and NBC net charge-offs for Canadian credit cards not reported.
5 BNS reported a spot balance for Q4 2013, excluding ScotiaLine Visa receivables ($6B as of Q4 2012 and Q3 2013), rounded to the nearest $1B.
6 Spot balances for Q4 2011, Q4 2012, and Q4 2013.  Year-over-year receivables growth not available for 2012 due to rounding of the Q4 2011 reported balance.
7 Excludes TD’s acquisitions and adds back BNS’ restatement to approximate organic receivables growth.
Source: Issuer financial reports and First Annapolis Consulting analysis.

Figure 2: Aggregate Delinquencies of Canadian Credit Card Trusts (% of A/R)


Return to Receivables Growth

For the selected issuers in this index, the average credit card receivables for the fourth fiscal quarter of 2013 decreased by 4.6% relative to the same period in 2012. However, this statistic provides a distorted view of the issuers’ organic growth, given TD Canada Trust’s (“TD”) acquisitions of MBNA Canada’s credit card business (December 2011) and HSBC Retail Services Limited (August 2013), and Bank of Nova Scotia’s (“BNS”) re-categorization of its ScotiaLine Visa portfolio ($6B as of Q3 2013) from its credit card receivables to lines of credit beginning in Q2 2013. After adjusting for TD’s acquisitions and BNS’ restatement, the selected issuers reported 4.1% growth in quarterly average credit card balances as of the fourth fiscal quarter 2013 versus the previous year, compared to a 3.8% decline the prior fiscal year. President’s Choice Financial (“PCF”) added 11.8% to its receivables base, the largest gain within the sample set. The company attributed the increase to investment in the active customer base through account acquisition and marketing initiatives. Canadian Tire Financial Services (“CTFS”) and TD, now the nation’s largest issuer, also reported significant growth in quarterly average outstandings at 7.6% and 7.4%, respectively. CTFS credited its receivables growth to strategic efforts to increase acquisitions and average balances, including the introduction of instant credit in select stores and new offers in retail outlets, such as multiplier points, discounts, and in-store financing. While TD did not comment on its credit card growth, the company’s August 2013 acquisition of HSBC Retail Services Limited’s private label credit card portfolio accounted for approximately $0.5B, or nearly half, of the increased credit card balances. Among the issuers covered, only Canadian Imperial Bank of Commerce (“CIBC”) posted a decline in credit card balances, dropping 2.5% from $15.1B a year ago to $14.7B in the fourth fiscal quarter of 2013. This decrease is aligned however, with the issuer’s strategy of focusing on loan quality over balances, and the company indicated that it is satisfied with the resulting improvement in net interest margin. Looking forward to fiscal year 2014, TD will likely widen its leadership position, bolstered by having purchased $3.3 billion of Aeroplan Visa assets from CIBC in December 2013.

Continued Loss Rate Improvement

Average annualized quarterly write-offs continued to improve in fiscal year 2013, falling from 4.0% of average credit card receivables in the fourth fiscal quarter of 2012 to 3.4% of receivables in the same period of 2013. These results are generally consistent with Canadian credit card trust data, which shows a 3.3% average annualized loss rate for the three months ended in October 2013, down from 3.9% a year earlier.3 While charge-off rates declined for each issuer during the past year, 2013 loss rates for self-issuing retailer portfolios remain higher than the bank industry average by an average of 218 basis points, due to deeper underwriting, primarily store-based (non-targeted) acquisition channels, and mass-market products. CTFS, which had the highest loss rates in the sample set, also reported the largest improvement in write-offs, reducing its annualized charge-off rate by 118 bps from 6.92% in the fiscal quarter ended September 2012 to 5.74% for the same period in 2013.

Except where noted, information and analysis reflects Canada-only credit card performance metrics, sourced from financial statements of Canada’s largest credit card issuing banks and Canadian self-issuing retailers President’s Choice Financial (“PCF”) and Canadian Tire Financial Services (“CTFS”).
2 All performance metrics and commentary for PCF and CTFS reflect the companies’ performance for the fiscal periods concurrent with the issuing banks’ financial periods, (e.g., data from PCF’s third fiscal quarter of 2013, which ended in September of 2013), will be referred to as the fourth fiscal quarter of 2013.
3 Source: DBRS Monthly Canadian ABS Report and First Annapolis Consulting analysis.

For more information, please contact Cara Weikel, Consultant, specializing in Credit Card Issuing,

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