OREANDA-NEWS. Fitch Ratings says its UK three-month average rolling charge-off index dropped to 2.5% in March 2016 from 2.8% in December 2015, following the best year for UK credit card ABS in terms of asset performance.

However, the recent improvement in the charge-off index largely stemmed from a one-time asset substitution in the Penarth trust. Additionally, the payment rate index fluctuated within its long-term band during 1Q16, while the gross yield index decreased further, following the introduction of the interchange cap in December 2015.

Fitch expects UK credit card performance to remain stable, with further improvements in trust performance in a favourable labour market potentially limited by a gradual increase in British household debt. Outstanding credit card debt continued to rise during 1Q16, reflecting robust confidence and the improving purchasing power of UK households. According to the British Bankers' Association (BBA), unsecured household borrowing in March 2016 rose 5.8% yoy, credit card borrowing 6.2% and other forms of unsecured borrowing (personal loans and overdrafts) 5.4%.

In April, Fitch rated the USD-denominated Series 2016-1 notes issued by the Penarth trust, which is backed by a pool of UK credit card receivables originated by Bank of Scotland Plc and Lloyds Bank plc.