Roll Rate

What Is a Roll Rate?

In the credit card industry, the roll rate is the percentage of cardholders who become progressively delinquent on their account balances due. The roll rate is basically the percentage of card users who "roll" from the 60-days late category to the 90-days late category, or from the 90-days late to the 120-days late category, etc.

Understanding Roll Rates

Roll rates are utilized by banks to help oversee and anticipate credit losses based on delinquency. In the credit card industry, creditors report late payments in 30-day increases beginning with the 60-days late category and running through 90-days late, 120-days late, 150-days late, etc up to charge-off. Charge-offs are subject to private company watchfulness and state laws. For federal loans, a charge-off is required following 270 days as indicated by federal regulation.

Ascertaining Roll Rates

Financial institutions have changing approaches for working out roll rates. They might calculate roll rates by the number of borrowers in delinquency or the amount of funds delinquent.

For instance, assuming 20 out of 100 credit card users who were delinquent following 60 days are still delinquent following 90 days, the 60-to-90 days roll-rate is 20%. Moreover, if by some stroke of good luck 10 out of 20 credit card issuers who were delinquent at 60 days are currently delinquent at 90 days, the roll rate would be half.

While considering delinquency roll rates by balances, a bank will base their computations on total delinquent balances. For example, on the off chance that the 60-day delinquent balance for a small bank's credit card portfolio in February is $100 million, and the 90-day delinquent balance for March is $40 million, the 60-to-90 day roll-rate in March is 40% (i.e., $40 million/$100 million). This suggests that 40% of the $100 million receivables in the 60-day bucket in February have migrated to the 90-day bucket in March.

Credit card giving banks estimate credit losses by isolating their overall credit card portfolio into delinquency "buckets," like the 60-day, 90-day categories referenced prior. A bank's management measures roll rates for the current month and current quarter, or an average of several months or quarters to streamline changes. Roll rates may likewise be additionally broken down side-effect category or borrower quality to gain a better comprehension of delinquencies overall.

Credit Loss Provisions

When roll not set in stone, they are applied to the outstanding receivables inside each bucket, and the outcomes are amassed to estimate the required allowance level for credit losses. Financial institutions normally update credit loss provisions in their financial statements quarterly. Credit loss provisions are generally an expense or liability that a bank discounts. Banks have varying systems for deciding credit loss provisions with ordinarily just a portion of delinquent balances written off in early delinquencies. Banks closely monitor roll rates and credit loss provisions to measure the risks of borrowers. Roll rates can likewise assist with crediting issuers to set underwriting standards based on repayment trends for different types of products and various types of borrowers.

Features

• The roll rate is the percentage of credit card cardholders that roll starting with one category of delinquency then onto the next.
• For example, you can measure the percentage of cardholders who roll from 60-days overdue to 90-days overdue.
• Roll rates are utilized to estimate financial losses due to future defaults.