Moody’s: Global auto loan performance will be stable in 2014

Redacción - Miercoles, 28 de Mayo

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Improving global labor markets will result in steady performance in auto loan asset-backed securitizations (ABS) in 2014, according to "Global Auto ABS: Steadying Employment and Strong Borrower Credit Will Support Performance," a new report. This article, the first in a four-part series that Moody's Investors Service will publish, examines the drivers and trends of credit performance of auto loan ABS in North America, Europe, Asia Pacific and South America.

The other articles in this series will examine the structural, operational and legal issues affecting the sector globally; the composition of the collateral pools and underwriting practices in each region; and the migration throughout different economic cycles of our ratings on the securitizations.

"Securitizations backed by pools of auto loans are a cornerstone of the structured finance markets in many regions, and the sector is drawing increasing interest in markets such as China," says Sanjay Wahi, Moody's Vice President and Senior Analyst. "The Chinese government is encouraging further development of the securitization industry and consumer demand for automobiles and auto financing options is growing rapidly."

"In China, stable employment and strong lending criteria mean that the majority of auto loans will be to prime borrowers, boosting performance in the loan pools," says Elaine Ng, Moody's Vice President and Senior Analyst. Low loan-to-value ratios (LTV) will also support performance.

Trends vary by region. In the US, underwriting standards have loosened as a result of the improving economy, causing delinquency and default rates to rise marginally. As a result, performance of more recent transactions will be weaker. "Losses on prime pools will remain at all-time lows in North America, though, because the majority of loans in the pools are still to very strong borrowers," explains Wahi.

In Europe, auto loan ABS performance will remain steady overall. However, Spanish auto ABS will continue to be weak given the high unemployment rate, according to Mehdi Ababou, Moody's Vice President and Senior Analyst.

Performance in Australia and Japan, which remained strong even during the financial crisis, will continue to perform steadily, given the predominance of loans to prime credit borrowers in the ABS pools in both countries, according to Moody's.

In South America, auto loan ABS performance will be mixed.
"Securitizations in Argentina will continue to perform well, because high inflation will lower LTVs over time, boosting recovery rates on repossessed vehicles," says Rodrigo Conde, Moody's Analyst. However, in Brazil, credit performance of non-prime loans will decline moderately given rising interest rates and the slowing pace of economic expansion.
Performance of prime deals will remain stable.

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