Moody's: Structured markets in China and Korea steady in 2018; varied for India

Moody's Investors Service says that solid economic growth will support the performance of structured finance transactions in China and Korea in 2018, while performance will vary by sector in India, depending on the impact of government policies and prevailing economic conditions.

In the case of China, delinquency rates for auto loan asset-backed securities (ABS), residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) will remain low in 2018, reflecting China's environment of solid economic growth.

Rising household debt will pose a risk to the performance of auto ABS and RMBS if other unfavorable macroeconomic events, such as interest rate increases and lower employment, occur simultaneously.

 

Meanwhile, the credit quality of assets backing new auto ABS, RMBS and CLO deals issued in 2018 will be good, reflecting loan underwriting standards.

Moody's expects that auto ABS deals issued in 2018 will have geographically diversified portfolios. However, delinquency rates in any new deals that have concentrated exposures to auto loans from lower-tier cities will be higher than average, given the lower quality of loans from these areas.

In India, performance will vary between sectors, and Moody's expects delinquency rates for commercial vehicle loans backing outstanding Indian auto ABS to remain stable around 5.4% for loans on new vehicles and 6.8% for loans on used vehicles in 2018, supported by healthy economic growth.

In the RMBS sector, delinquencies will remain low around 1% in 2018, with stable interest rates and home prices supporting performance.

Meanwhile, delinquency rates in ABS deals backed by loans against property to small and medium-size enterprises (SMEs) will increase in 2018, because of the tougher operating environment for SMEs. The introduction of a goods and services tax in July 2017 and the government's demonetization policy have placed stress on the SME sector.

In Korea, credit card ABS delinquencies will remain low in 2018, as the market benefits from low unemployment and a low interest rate environment.

The quality of credit card receivables backing new Korean credit card ABS issued in 2018 will be good overall, given that such deals will include eligibility criteria to prevent poorer quality receivables being included in securitized pools.

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