Explanation:
The default ratio (also referred to as the charge-off rate) is a key metric in assessing the performance of Credit Card ABS. It represents the value of written-off (defaulted) credit card receivables as a proportion of the total value of credit card receivables in the pool. When an account becomes severely delinquent (e.g., beyond 180 days), it is typically written off as a loss.
Choice A is incorrect. This description defines the delinquency ratio, which measures the proportion of receivables that are past due but have not yet been written off as a default.
Choice C is incorrect. This description defines the Monthly Payment Rate (MPR), which measures the rate at which borrowers are paying off their outstanding balances in a given period.
Choice D is incorrect. The default ratio is measured as a proportion of the total credit card receivables (the asset pool), not the total liabilities of the ABS.
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Q.2052 There are various ratios which can be used for assessing the performance of Credit Card ABS. The three main types are the delinquency ratio, monthly payment rate (MPR), and default ratio. Which of the following statements correctly defines the default ratio?
A
The value of overdue credit card receivables (beyond ninety days) as a proportion of the total value of credit card receivables.
B
The value of written off credit card receivables as a proportion of the value of total credit card receivables.
C
The proportion of interest and principal on the pool that is repaid in a particular time period.
D
The value of written off credit card receivables as a proportion of the total liability.
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