Record high PPR on credit cards in Japan credit positive: Moody's

Thanks to its risk reduction effect.

The emergence of a record high principal payment rate (PPR) on Japan credit cards is credit positive for securitizations backed by Japanese credit cards because it reduces the risk of losses from defaults, an analysis says.

According to Moody's Structured Thinking: Asia Pacific newsletter, when PPR is high, card holders clear their debt sooner, which leads to the shortening of the maturity of credit card asset-backed securities (ABS) transactions.

This in turn leads to a lower cumulative default rate in the pools through the life of the deals.

Here's more from Moody’s Structure Thinking: Asia Pacific:

The PPR for Japanese credit-card ABS increased steadily from 2011 to 2013, hitting a new high in December 2013, owing to a decrease in the average loan balance per receivable10 and the payment requirement tables adopted by originators that basically require higher principal payment rates for borrowers with smaller loans.

PPR will stay at its current high levels as long as the major originators maintain their current payment requirement tables and average loan balances. We expect the average loan balance to maintain its current level.