Fitch: APAC Structured Finance Losses to Stay Negligible

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Global Structured Finance Losses: 2000–2016 Issuance www.fitchratings.com/site/re/903262">https://www.fitchratings.com/site/re/903262 HONG KONG/SYDNEY/SINGAPORE, September 13 (Fitch) Total losses on APAC structured finance (SF) transactions issued between 2000 and 2016 are likely to remain very small, at well below the global average, says Fitch Ratings in a new report. Fitch assigned ratings in APAC to over USD540 billion of SF bonds between 2000 and 2016. We forecast that realised losses plus future expected losses on these transactions will total just 0.6% of the original note balance, which is unchanged from the estimate in our last analysis in 2015. Fitch expects global losses on SF transactions issued over the same period to be 3.2% of the original balance. No losses have been realised or are expected in APAC RMBS or consumer ABS transactions. These are the most active asset classes in the region. The total realised loss on commercial ABS is estimated at 0.1%. These losses were caused by transaction-specific circumstances and we do not expect any further write-downs. Transactions in APAC continue to be supported by strong economic growth, which means that assets have generally performed within our expectations. The outlook for the region's economies is generally strong, with aggregate growth likely to remain faster than in other regions. We also expect interest rates to stay relatively low across most of APAC, despite likely tightening in the US. No Fitch-rated note in Australian RMBS has ever suffered a principal loss, and we expect this to remain the case. However, the asset class, which is the largest in Fitch's APAC structured finance rated portfolio, could face more difficult conditions over the medium term. Strong house price growth has helped to minimise losses on individual defaulted loans in recent years, but prices have increased significantly ahead of income. House price growth is likely to slow, especially in Sydney and Melbourne, and property prices could decline in the medium term, particularly if the economy deteriorates. Fitch accounts for future house price declines in its RMBS ratings analysis by assuming market value declines for Australian houses ranging from 25% at 'Bsf' to 61% at 'AAAsf', depending on the rating level and location of the security property. Increases in Australian interest rates would be most likely to negatively affect recent vintages, as first-time borrowers have only known low interest rates. However, Fitch expects the policy rate to rise by just 50bp by end-2018, and underwriting has strengthened over recent years as regulatory oversight has been tightened, for example with the introduction of affordability tests for interest rates up to 7%. There is also a strong tradition of overpaying loan instalments - most borrowers are ahead of schedule. The short transaction life of most APAC ABS, typically two to three years, limits their vulnerability to changes in economic conditions. Local factors also guard against risk in some markets. In China, for example, many borrowers do not need financing to buy a car, but take a loan in order to receive discounts. In India, the importance of vehicles to borrowers' occupations creates a strong incentive for repayment, which is one reason why demonetisation, loan waivers and the introduction of the goods and services tax have had no impact on our ratings or outlooks for Indian ABS transitions. For more information and our methodology, see "Global Structured Finance Losses: 2000-2016 Issuance" available at www.fitchratings.com or by clicking the link in this media release. Contact: Alison Ho Senior Director Structured Finance +852 2263 9937 Fitch (Hong Kong) Limited 19/F, Man Yee Building 68 Des Voeux Road Central Hong Kong Ben McCarthy Managing Director Structured Finance +61 2 8256 0388 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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