Key points of a Moody’s Ratings report on auto asset-backed securities (ABS) comparing credit traits of rated deals in Australia, China and Japan include macroeconomic conditions weighing on borrowers, with delinquency and default rates set to increase this year in Australia and China.
Electric vehicle (EV) loans are growing in auto ABS performance, creating some uncertainty about recovery rates as markets transition from internal combustion engine (ICE) vehicles, says Moody’s Ratings.
Non-bank issuers dominate auto ABS markets, with varying credit effects across countries, it adds.
The report says Asia-Pacific auto ABS share common credit traits but also have key differences in relation to issuers, borrowers, asset performance, deal structures, recovery rates, exposure to EVs and other key features.
In Asia-Pacific, the main auto ABS issuers are non-bank finance companies, including those linked to automakers (captive) and those that are independent of automakers (non-captive). In China and Japan, captive companies originate loans or leases to higher credit quality borrowers than non-captive companies on average.
In Australia, most auto ABS issuers are non-captive companies, says the report.
Most borrowers are individuals for the purchase of private vehicles, particularly in the Asia-Pacific auto ABS, but there is some SME exposure, it adds.
In an economic downturn, SMEs will pose more of a risk than individuals, the report says.
Modelled auto ABS recovery rates are higher in Australia than Japan and China.
“Australia largely comprises high-credit-quality borrowers who have shifted from banks,” says Moody’s Ratings.
“Australian banks have pulled back from the auto lending market over the past decade, opening the door for non-captive finance companies to grow significantly in a customer segment that banks previously served. Some non-captive finance companies have also acquired auto loan portfolios from banks.
“In Australia, we expect high interest rates and ongoing cost of living pressures to erode the capacity of some borrowers to repay auto loans, pushing up delinquency and default rates.”
