Credit issuers' asset quality saw significant improvement last year thanks to stronger employment, higher monthly payments by cardholders and a continued "portfolio cleansing" by issuers, according to Curt Beaudouin of Moody's.

Charge-offs, or loans that lenders don't expect they will be able to collect, peaked at 11% for the "Big 6 issuers" in the first quarter of 2010. Moody's expects charge-offs will decline 15% to 20% this year to about 4.5%. That compares with a decline of more than 40% last year to about 5.5%. Moody's said the long-term average is 4.7%.

Asset quality varies widely among the "Big 6" card issuers: JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Capital One Financial Corp. (COF), American Express Co. (AXP) and Discover Financial Services (DFS).

Moody's expects Capital One will be the worst performer this year, with charge-offs averaging about 5.7%, mostly owing to the $2.6 billion deal for HSBC Holdings PLC's (HBC) U.S. card operations, which is expected to close in the current quarter and make Capital One one of the largest issuers of private-label credit cards. Moody's expects American Express will turn in the best performance, with charge-offs averaging about 2.1%.

"Together with expected balance growth of about 5%, continued improvement in asset quality should lead to a significant increase in profitability this year, with pre-tax profits likely to go up by about 35%," Beaudouin stated.

Portfolio balance growth has been led by Capital One, American Express and Discover, Moody's said.

Though the industry is facing increased regulatory pressure, Moody's doesn't expect that any possible regulatory action will have ratings implications for the biggest credit-card issuers and that any potential penalties would be "well within their financial resources."