Moody's: Structured finance transactions to continue strong performance in 2018, despite some weakening in underwriting
Moody's Investors Service says that auto asset-backed securities (ABS) will perform solidly in 2018 in the markets of China, Australia and Japan, although some divergence will also be evident for each individual market, reflecting differences in collateral performance and economic conditions.
"The performance of auto loans -- the underlying collateral for auto ABS -- has been strong for China, Australia and Japan. We expect it to remain so across these markets, but to different degrees because of diverging trends in economic growth," says Kan Leung, a Moody's Vice President and Senior Analyst.
"In India, auto ABS performance has stabilized after a period of deterioration and we expect delinquencies to remain stable at around current levels through 2018," adds Leung.
In China, the level of auto loan delinquencies and defaults is low, and Moody's does not expect a significant decline in the pace of China's economic growth, an increase in unemployment or an imminent financial shock.
In Australia, auto loan delinquencies will increase in regions exposed to the slowdown in the resources sector in 2018, while the performance of loans from regions not reliant on resources will be relatively stronger.
This situation will ensure that the overall increase in delinquencies is moderate.
In Japan, auto loan performance is strong, supported by the country's strong job market conditions, with an unemployment rate of 2.4% in January 2018.
And in India, auto loan performance steadied over Q4 2017 after an increase in delinquencies following the government's implementation of demonetization in November 2016, the transition to the new BS-IV vehicle emissions standards in April 2017 and the rollout of GST in July 2017.
In terms of auto ABS performance, the average 30+ days delinquency rate for Chinese transactions was low at 0.12% in December 2017, though this level was slightly up from 0.10% in September 2017.
For Australia, the average 30+ days delinquency rate increased to 1.70% in December 2017, from 1.52% in September 2017.
In Japan, the annualized default rate increased to 0.63% at the end of Q3 2017 from 0.55% in the previous quarter.
In India, the average 60+ and 90+ days delinquency rate increased to 5.80% and 3.71% in December 2017, from 5.51% and 3.52% in September 2017 respectively. The performance of commercial vehicle loans has stabilized after a period of deterioration that started with demonetization at the end of 2016.
During Q4 2017, Moody's rated 13 auto ABS across Asia Pacific. Moody's also upgraded the ratings of three Chinese auto ABS, one Japanese auto ABS and five Indian auto ABS in Q4 2017.
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