Moody's: Auto ABS deals show strong performance in Q3 2017 for China, Japan, Australia; stabilizing for India

Moody's Investors Service says that the performance of loans backing auto asset-backed securities (ABS) in China, Australia and Japan was strong in Q3 2017, while the market in India showed signs of stabilization, after an increase in delinquencies because of demonetization as well as the introduction of the goods and services tax and new emissions standards in the country. These trends in Q3 2017 stayed unchanged from those seen in Q2 2017.

We expect performance to remain strong across China, Australia and Japan, but to different degrees with some outperforming others, owing to diverging economic growth trends," says Robert Baldi, a Moody's Assistant Vice President and Analyst.

"On the Chinese auto ABS market, in particular, the level of auto loan delinquencies and defaults is low, says Ning Loh, a Moody's Senior Vice President. "Because we do not expect a significant decline in the pace of China's economic growth, an increase in unemployment or an imminent financial shock, the overall environment in the country is conducive to the stable performance of auto loans."

The average 30+ days and 60+ days delinquency rates for China's outstanding auto loan ABS registered 0.13% and 0.04% respectively at the end of the third quarter of 2017 (for the three months to 30 September 2017), up from 0.08% and 0.03% at the end of the second quarter of 2017. Despite the slight increase in delinquencies from low levels, outstanding auto ABS continue to perform well.

For India, Moody's says that auto loan delinquencies should stay stable at around current levels during 2018, with performance supported by gradually strengthening economic activity.

On an original balance basis, the average 30+ days delinquency rate for the Indian auto ABS transactions we rate fell to 6.08% in September 2017 from 6.30% in June 2017, in a sign that performance has stabilized following the increase in delinquencies in the immediate aftermath of demonetization and the rollout of the goods and services tax.

The 60+ days delinquency rate in India fell to 2.52% in September 2017 from 2.57% in June 2017, while the 90+ days delinquency rate increased to 1.43% from 1.27% and the 180+ days delinquency rate remained stable at 0.68%. Overall, the delinquency rates on an original balance basis indicate that performance is stabilizing. Moody's points out that calculating delinquencies on an original balance basis strips out the effects of prepayments and scheduled amortization.

As for Japan, auto loan performance is strong, supported by the country's strong job market and moderate economic growth. The annualized default rate for the Japanese auto loan ABS that Moody's rates fell marginally to 0.69% at the end of the second quarter of 2017 from 0.70% in the previous quarter. And, the average annualized default rate in the second quarter of 2017 was 0.64%, slightly up from 0.59% in the first quarter of 2017. Japanese auto loan ABS performance remains strong.

With Australia, Moody's says that auto loan delinquencies vary across the country's. Auto loans from regions reliant on the resources sector, for instance, have come under pressure from the unwinding of the mining investment boom and show higher delinquency rates than those from more economically diversified areas.

Moody's expects auto loan delinquencies to increase in Australian regions exposed to the slowdown in the mining sector.

The average 30+ days delinquency rate for Australian auto ABS fell to 1.6% at the end of the third quarter of 2017 from 1.66% at the end of the second quarter of 2017, but has increased from the 1.29% at the end of the third quarter of 2016.

For the Australian market, lower exposure to better performing receivables such as novated leases, and higher exposure to worse performing receivables such as consumer loans, accounted for a portion of the increase in delinquencies over the year. The natural amortization of auto ABS portfolios also had a large impact on the delinquency rates of some older and smaller deals.

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