Moody's: Auto ABS delinquencies in Asia Pacific will stay low in 2016 on low interest rates, positive credit traits

Moody's Investors Service says that delinquencies for auto loan asset-back securities (ABS) in Asia Pacific will remain low in 2016, owing to low interest rates, supportive economic backdrops, and positive credit traits.

"Delinquencies in Australia and China will rise slightly in 2016 from low levels, reflecting below-trend economic growth in both countries, but will also stay low," says Alena Chen, a Moody's Assistant Vice President and Analyst.

"By comparison, delinquencies in India will improve thanks to the country's accelerating economic growth, while historically low unemployment levels in Japan will help keep delinquencies stable at their current low levels," adds Chen.

The Moody's report highlights that the low interest rates in Asia Pacific markets -- with central bank policy rates at multi-year lows in Australia, China, India and Japan -- are boosting the repayment capacity of borrowers.

In China, where some auto loans have floating rates, cuts in interest rates have directly reduced the debt burden of borrowers. And while such loans in Australia, India and Japan have fixed rates, the cuts still indirectly support the performance of auto ABS by lowering the repayments of borrowers on other variable-rate commitments.

In addition, most auto ABS transactions in Asia Pacific are backed by loans and borrowers with strong credit characteristics.

Firstly, with the exception of India, the majority of auto ABS collateral pools in Asia Pacific consist of loans to individual borrowers with prime credit histories.

Second, auto ABS transactions in the region mostly comprise loans for the purchase of new passenger vehicles, which have historically outperformed loans for used and commercial vehicles.

Auto ABS transactions in the region are also diversified across a large number of borrowers and geographic locations, a situation which reduces performance volatility.

Finally, the characteristics of such transactions in the region -- such as amortizing balances, low average life and low loan-to-value ratios -- are also positive for performance.

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