Fitch Ratings' Outlook on the ratings of its eight credit card and two auto-loan Korean ABS transactions is Stable, supported by resilient asset performance, benign interest rates and robust transaction structures despite the agency's expectations of slower domestic economy.
Fitch Ratings revised its 2020 asset outlook on Indian auto loans to stable-to-negative, from stable in 2019, due to the country's major economic slowdown; we forecast GDP growth to decline to 4.6% in the financial year ending March 2020.
Assessing downside risk of U.S. consumer credit can be more difficult if different versions of credit scores are used when lending, underwriting standards are relaxed amid a supportive economy, or when lenders are reaching for growth.
Key indicators show that overall the US consumer is more resilient now than prior to the financial crisis, and these consumer conditions have supported strong loan performance in most consumer sectors, particularly for prime borrowers.
Indian auto-loan ABS transactions will continue to outperform the portfolios of their respective originators. The transactions we rate typically have peak 90+days past due (dpd) rates that are 30% to 60% lower than the vintage pools of the originators for the different loan types. The key reason for the better performance of securitised transactions is the exclusion of a riskier portion of the originators' portfolios.
Following the decline in UK used car values in recent months, Fitch Ratings notes that based on model-implied outcomes, an additional 5% reduction to its net base-case sale proceeds assumption would impact senior auto ABS notes' ratings by one notch. A 2% decline is unlikely to have any effect on senior notes.
Fitch Ratings has launched an ESG 'heat map' covering 54 different sub-sectors across 4,821 transaction and programme ratings for structured finance (SF) and covered bonds (CVB), to provide further insight into the relevance of ESG factors to credit ratings. The map is designed to help users understand how relevant individual ESG topics are to credit ratings across different sub-sectors for ABS, CMBS and RMBS transactions, and CVB programmes.
Bank of the West announced this week that they are exiting the indirect auto lending business, and will halt new, indirect retail loan originations as of Nov. 12, 2019, and service their portfolio as it pays down. The move by BOTW is not expected to affect the performance or ratings of the outstanding Bank of the West Auto Trust ABS transaction at this point.
Chargeoffs for prime and retail U.S. credit card ABS improved slightly last quarter following elevated levels observed in the first half of 2019, according to Fitch Ratings in its latest quarterly credit card index.
Fitch Ratings says social and governance risks have the most impact on its new environmental, social and governance relevance scores for structured finance and covered bonds (SF and CvB) ratings globally. Initial results show on aggregate 18% of transactions and programs across SF and CvB asset classes contain contributing ESG factors or credit rating drivers.
Performance across U.S. prime and retail credit card ABS remained largely consistent as of the September 2019 distribution date, according to Fitch Rating's Prime and Retail Credit Card Indices. With the U.S. unemployment rate stable at 3.7% for the last three months, Fitch expects credit card performance to remain strong in the near term driven by strong ability of employed consumer to make credit card payments.
Our ESG Relevance Scores show the relevance and materiality of ESG to our rating decisions and are integrated into our ABS, CMBS and RMBS transaction reportsand covered bonds program research to transparently and consistently display the impact of ESG elements on our credit ratings.
FFELP student loan ABS continues to experience a slowdown in payment rates, according to a new Fitch Ratings report published today. Much of the slowdown is driven by increased utilization of income based repayment (IBR), particularly partial financial hardship (PFH) where the borrowers make payments tied to their income, which may be as low as 0$ per month. The increase in PFH and related slowdown in payment rates caused a deceleration in the decline of the weighted average loan term across the Fitch rated portfolio.
Industry initiatives and adaptations in market practices continue in anticipation of the discontinuation of IBOR indices. But progress is uneven across jurisdictions and asset classes. For structured finance (SF), like other markets, key uncertainties relating to legacy contracts and transition in consumer products remain.
Data collated by Fitch (which does not rate deals in this sector) shows aggregate performance deterioration in 27 credit card ABS transactions originated by seven banks. Some of their mother pool static performance data reported in shelf registration documents point to a similar trend.
With the most recent consumer ABS discussions focusing on autos, in this latest virtual investor meeting, Head of EMEA ABS, Markus Papenroth, discusses important trends which investors may be overlooking in the unsecured consumer space.
The ongoing trade wars have placed greater pressure on the already stressed US agricultural sector, negatively affecting equipment loan and lease asset backed securities (ABS) collateral performance. Commodity prices took a precipitous decline in 2014 and have yet to rebound, resulting in declining agricultural sales and reduced net income for US farmers.
Loss levels remained significantly below Fitch's expectations and we expect that ratings can withstand multiples of current loss levels, with stable macroeconomic conditions supporting borrowers' ability to service debt.
The UK, Germany, Spain and Italy all show a declining trend in used car prices this quarter, Fitch Ratings says in its latest index report for auto ABS in Europe. The change is particularly pronounced in the UK, where Brexit uncertainty is weighing heavily on consumer confidence.
UK credit card ABS charge-offs increased slightly despite 60-180 days delinquencies being stable over the last quarter. In Europe, the recent stabilisation in charge-offs resulted from the end of the ramp-up period of two transactions, while charge-offs are expected to continue stabilising as a result of supportive economic trends.
The performance of Chinese auto ABS and RMBS transactions remained strong in 2Q19, despite the country's increasing household debt, due largely to the tight underwriting standards imposed by regulators, Fitch Ratings says. We continue to maintain the stable outlook for these two sectors.
Auto-ABS issuance reached CNY78.4 billion by end-June 2019, exceeding issuance in the first three quarters of 2018. This was partly led by the continued rise in the auto-finance penetration rate to approximately 50% by end-2018, although it remained significantly lower than that of developed markets.
Canadian credit card ABS performance was mostly stable last quarter with all metrics consistent year over year, according to Fitch Ratings in its latest Canadian credit card ABS index. Chargeoffs on Canadian credit card ABS increased to 3.04% in second-quarter 2019 (2Q19) from 2.88% in 1Q19. However, a marginal drop in 60+ day delinquencies may indicate stable chargeoff performance in the near term.
Chargeoffs for prime U.S. credit card ABS rose slightly last quarter following a slow start to the year while retail performance rebounded notably, according to Fitch Ratings in its latest quarterly credit card index.
Unemployment is at its lowest level in half a century and wages are still growing. John Bella discusses what this means for core assets like credit cards, prime autos and even student loans in our Virtual Investor Meeting for U.S. ABS.
While U.S. core ABS performance remains strong due largely to low unemployment, many investors are zeroing in their questions on some of the sector's non-core assets, according to Fitch Ratings in its 2019 Virtual Investor Video Series for structured finance.
Total losses on US and Canadian structured finance (SF) bonds are concentrated in crisis-era transactions (2005-2007 vintages) and primarily consist of losses on US RMBS, Fitch Ratings says in a new report. Losses on SF tranches issued prior to 2009 contribute 99.9% of total SF losses. Approximately 95% of pre-crisis bond issuance is resolved (repaid or loss realized) or withdrawn.
Blockchain distributed ledger technology has the potential to improve the transparency and execution time of traditional securitizations and covered bonds. However, blockchain is largely untested in securitization and covered bonds and is currently narrowly applied. While Fitch acknowledges the transactional efficiencies the technology provides, it will be a number of years before these benefits will be fully realized.
Delegates at this year's Global ABS conference in Barcelona were considerably less optimistic about publicly-placed European structured finance issuance volumes compared to last year, according to a survey conducted by Fitch Ratings. Just 36% of respondents expected 2019 issuance volumes to beat last year's EUR162.3bn, down sharply from 77% in 2018 that expected a year on year rise.
Fitch Ratings expects stability in residual value (RV) realizations throughout 2019 and has revised its Wholesale Market Outlook (WMO) Haircut to neutral from negative for most auto lease asset backed securities (ABS).
Performance of U.S. prime and retail credit card ABS continued to post mixed results, with improvements in charge-off and delinquency rates while monthly payment rates (MPR) and gross yields trended lower during the April collection period, according to Fitch Ratings.
Total losses on EMEA structured finance (SF) are low and are concentrated in certain crisis-era transactions, Fitch Ratings says in a new report. More than three-quarters of all expected losses have now been realised.
Fitch’s Chief Credit Officer, Jeremy Carter, and Group Credit Officer, Andreas Wilgen, discuss the progress which has been made to prepare financial markets for the discontinuation of IBOR indices and highlight the risks which still remain.
Recent market and regulatory developments suggest that the immediate risks to German auto ABS transactions from declining diesel car prices have eased. This would be consistent with our decision not to adjust our asset performance assumptions so far in response to proposed driving bans and shifting consumer sentiment away from diesel, but it remains important to monitor developments and test transactions for their resulting sensitivities.
European carmakers are refocusing their strategy towards electric vehicles and catching up with specialised manufacturers. Carmakers have increased investments in plug-in-hybrids and battery electric vehicles with numerous model launches expected in the next 12 to 24 months.