European credit card asset securitization

Assets on the basis of characteristics Analysis of the credit card portfolio of assets on the basis of the characteristics is necessary because we will be able to find out how the transaction is carried out. Its main characteristics are as follows: account balance (and its weighted average balance of a variety of distribution). The weighted average credit limit its effectiveness. Account for the period (and its weighted average balance of a variety of distribution). Account of regional distribution. Cardholders a variety of balance and the distribution of the weighted average account balance of the distribution of credit risk in the portfolio is effective in a wide range of determinants of the two. It must be noted that although all cardholders in terms of lower weighted average account balance is better than a combination of higher portfolio, and the individual cardholders, the lower the account balance given customer credit records to stay A bad impression. Therefore, credit card receivables portfolio weighted average account balance and credit card issuers to issue linked to the strategic consideration. In addition, the weighted average account balance should be given to the weighted average credit limit the use of the frequency link analysis, in other areas. Given a credit limit the use of low frequency combination is better. On average, a low-frequency limit the use of credit card and a frequent use of a given credit limit of the cardholders, it is not easy even in times of economic downturn breach of contract. Account based on the number of years (the age) division of the credit card portfolio structure shows that aging of assets in a variety of combinations in the great differences in Table 1 gives the number of years divided by two credit card portfolios of the initial structure of aging. Allen 2000-A combination of a shorter aging. In the completion of the transaction, less than 55 percent of cardholders in the securities held by the trust in Royal Bank of Scotland credit Qatar more than two years. This is Grace Church of the aging of the credit card is a big difference in the grace period for the church credit card portfolio, when the transaction is completed, approximately 88% of card holders have a Qatar for more than two years. Trust, the longer the aging is useful, because a combination of longer aging, the former assets of more stable performance. This is because the new receivables portfolio at the beginning of the 18-month increase in the loss often, tend to decline since the loss, and then later a stable performance. Over time, lower-quality, high-risk accounts were written off and removed from the portfolio, the quality of the rest of the high risk on account of lower to show a more stable performance. Finally, the analysis of the accounts of the regional distribution is also very important. A wide range of regional distribution of the loan portfolio is useful, because when a regional economic recession, diversified portfolio can help reduce losses. Asset performance Credit portfolio analysis of the key performance factors such as the combination of income, the monthly payment rate (MPR), debt arrears, and the loss of additional income. Most of the euro on the credit card ABS, the performance of these factors Buluboge published in the monthly report. What are the factors on the performance of public needs and how to calculate the performance of these issues have to be followed to achieve a higher standard, which led to the credit card ABS market has a high degree of transparency. This has allowed us to construct meaningful data in order to effectively track all or part of the major credit card market performance. Barker to asset management companies have established a market CCABS the euro, known as the euro back to credit card indicators (BECCI). BECCI including the public's rating of the credit card market transactions that occurred about 120 million euros receivables portfolio performance indicators, the figure is about credit card ABS market in Europe's 85%. If the results can not be traded through open or have not yet obtained, the transaction does not include in BECCI. Through a variety of performance indicators in public ratings of the outstanding notes weighted calculated. We will discuss the combination of income, the monthly payment rate (MPR), default, loss of additional income and additional income rate (ESE) and the rate of loss cover (COC). At the beginning of the five performance indicators, the latter two indicators are linked. A variety of performance indicators show that Europe and the U.S. credit card assets. Europe on the use of our credit card assets BECCI, and the U.S. credit card asset quality, we use the Standard & Poor's credit card index system. Income Portfolio Portfolio income equal to the cost of financing revenue, said that for the balance of outstanding receivables portfolio as a percentage. The cost of financing income, including interest receivable, the annual fee, the delay in payment of fees, super-limit credit card fees and credit card fees. Portfolio income from its customers to use credit cards to decide. Cycle accounts usually have a period of accounts than in January (the end of the month, customers often pay off their balance) and higher financing costs and income. Revenue also depends on the duration of the portfolio account the characteristics of the structure, if the term structure of the lower stability of a large number of customers may benefit from preferential interest rates. The percentage of accounts with the term structure and improve the stability of the decline in income also improve. Figure 1 gives the United States, Europe and some of the important credit card income. As shown in Figure 1, as the monthly income of the different number of days, whether in Europe or the United States, were displayed on income volatility. For example, in the United Kingdom in June 2002 to celebrate the 50th anniversary of the enactment of such legislation, the Bank of England increased by an additional holiday. Since over 90% of Europe's credit card assets of the trust is the basis of pounds of income in June to reduce the number of days of the great European performance indicators. On the main trust of the cash income fell by 1 / 5 over, and then make the combination of nearly 20% of revenue. On the rate of pay On payment rate (MPR), including the principal of the month, the combination of income and other costs of recovery. This is an important variable, because it means that the assumption that a stable combination of conditions, the receivables base is how quickly recovered. Therefore, if MPRs higher, investors in the early amortization period may be paid more quickly. MPR depends on the proportion of short-term customer, which is also affected by the issuers of the customer strategy. Higher short-term gains in reducing the proportion of customers at the same time, but also on the rate of pay increase. Usually, MPR and the credit card-related quality of the relationship. Although the ratio of short-term customers will not increase too, but will be paid on the rate of kept to a minimum the cardholder if the interruption of revenue streams, its budget will be less flexible. Figure 2 shows that in January 2000 and September 2002, when the combination between fluctuations on earnings at the same time, the monthly payment rate has been relatively stable. Debt arrears Debt arrears futures customers can not pay due to the number of days, the indicator has become a measure of predictability in the portfolio loss of a reliable indicator of trends. As shown in Figure 3, in April 2001 and September 2002, Europe and the United States Securities and credit card debt owed one to fluctuations in the previous post, but in Europe the figure has been consistently lower than the United States. In September 2002, the European one-year debt, the average default rate is 4.53 percent, a figure the United States than the 5.29 percent low of 76 basis points (0.76 percent). In the analysis of a specific credit card portfolio of debt arrears, on the other hand, requires attention to the factors that the issuer of debt arrears and the loss of countermeasures. Figure 4 gives the credit card on the three main British Trust (RBS from the Allen Trust and MBNA EBL of the two main trust) of more than 30 days of the debt owed. At first glance, the combination of Allen as the other two portfolios because of its debt arrears continued to increase until October 2001. In by the end of September 2002, Allen's portfolio of outstanding debt ratio of 6%, much higher than the combination of the two MBNA EBL debt default ratio (less than 4%), but if the combination of the two losses came in response to consider We can understand why. MBNA EBL with its parent company (United States MBNA EBL) to deal with the loss of policy that is, if more than 180 days overdue, the account will be canceled out. In the United States have such a policy is, if the debt arrears amounted to 180 days overdue, companies have to write off debt owed accounts. In the UK there is no such a policy after a specific period that can write off the debt. Alternative provision, if the receivables were convinced that the formation of the loss was written off. RBS in overdue debts owed more than 365 days after the loss to write off accounts than MBNA EBL to write off the date of the postponed for 6 months. This may explain why the combination of Allen's outstanding debt is much higher than the proportion of MBNA EBL. Debt owed by various groups are often in arrears for the period of the report, generally 30 to 59 days, 60 to 89 days, 90 days and a few more days. We have created a model that will enable us to those who do not have to consider the issue of countermeasures adopted by the loss also evaluate the different combinations of the steady-state level of debt arrears. The model will enable us to a report in 365 days in order to account for the company to write off the loss of more than 30 days in arrears of debt and the assumption of 180 days will be able to write off the loss of accounts to describe the condition of these figures. Figure 5 shows the two imaginary horizontal line with the combination of Allen's actual debt owed curve, the two dotted lines on behalf of the steady-state model of a debt default. If the loss is a period of 365 days to write off, the model of a debt default ratio is 8.91 percent. If it is 180 days, the ratio dropped to 4.05 percent. The model did not consider the amount of recovery, and thus the model of debt default ratio of 8.91 percent and the actual proportion of debt owed 6.06% (9 at the end of 2002, an average of more than 6 months) showed that the difference between the land clearance process will effectively reduce the level of debt owed by About 32% (model predicted the total proportion of the arrears was 8.91 percent, while the actual proportion of arrears of the report is 6.06 percent. 2.85 percent of the difference may be due to the amount of recovery, and therefore 2.85% / 8.91% = 32%). Figure 5 shows that under the same conditions, the combination of Allen and the proportion of debt owed MBNA EBL is the same. In addition, the model did not consider the amount of recovery, and this is a prudent assessment. Loss That the combination of the loss suffered by the loss of credit. The maximum loss of credit card accounts in general, about 18 to 24 of them were observed. Figure 6 gives BECCI by the Statistics and Standard & Poor's losses came to the curve with the curve of debt arrears, Europe and the United States of the loss curves have also shown a similar relationship. However, in Europe and the United States demonstrated by the enormous differences show that Europe than the United States Securities and credit card credit card securities more attractive, the response to the U.S. market to more competition and a greater tendency to bankruptcy. Additional revenue Additional revenue measure is a combination of credit quality indicators, the negative often lead to additional revenue to pay installments in advance. Additional income is less income portfolio management fees, ticket income, losses and other costs. Figure 7 are given credit cards in Europe and the U.S. Securities March period, the average additional income. Traditionally, the European credit card securities additional revenue is higher than the United States. The reason is that in Europe there is a combination of higher revenue and lower the number of losses. Additional revenue and offset the loss rate Because of the additional revenue can offset the loss of ticket, which is the holder of the notes in the first line of defense in the additional income portfolio play an important role. However, the deteriorating economic environment, with additional revenue similar to the different combinations are different. Table 2 shows the additional revenue on two different credit card portfolio generated. Although the two have very similar combination of additional revenue, but all other performance indicators are very different. According to the combination of income, the monthly payment rate and the loss to determine, first by the combination of high-quality borrowers may constitute, and the second from sub-optimal portfolio like composition of the borrowers. When the economy is deteriorating, by a combination of high-quality borrowers, or subprime borrowers directly affect the composition of its performance. Subprime borrowers tend to have a very rigid budget, an increase in revenue and almost no flexibility (as in the rate paid on the part of the set) and thus the economy's slide could lead to the formation of a second combination of higher default and loss . The high-quality borrowers because of their higher level of reserves and hence easier to deal with the deteriorating economic environment. Therefore, changes in the performance of the assets of the severity of the combination of high-quality bound smaller. However, this article will introduce the ratio of two to help us predict the deterioration of the economic environment under the conditions of changes in asset performance. Is an additional revenue rate (ESE), and the other is the rate of loss cover (COC). ESE equal to the additional revenue divided by the combination of income, which measures income managers will be transformed into additional revenue. The higher the ratio of predictable economic downturn on the performance of smaller assets. As shown in Table 2, high-quality issuers (Issue 1) than the second-best issuers have higher rates of additional revenue. In September 2002, Europe and the United States credit card portfolio in additional revenue rate is 44% and 39%. COC is a measure of investor security is more important indicator, since it mean that with the additional revenue losses in the previous year. The higher the ratio of the Trust's ability to cope with economic decline, the stronger. High-quality portfolio (1 issuer) than the second best combination (Issue 2) have a higher COC. Because of the high-quality portfolio, the ratio was 1.66, meaning that additional revenue could be offset losses in excess of the amount of loss is the ratio of 66%. The second best combination, COC may cover only the amount of the loss is equivalent to the amount of the loss of 53%. In September 2002, Europe and the United States credit card portfolio of COC were 2.15 percent and 1.06 percent.