Moody’s out­look sta­ble for Cana­dian ABS

The Pak Banker - - 6BUSINESS -

The out­look re­mains sta­ble for the Cana­dian auto and credit card as­set-backed se­cu­ri­ties (ABS) and for Canada’s seven cov­ered bond pro­grams, says Moody’s In­vestors Ser­vice in its an­nual out­look report for the sec­tors. The sta­ble out­look re­flects very strong col­lat­eral at­tributes in both credit card and auto ABS in Canada.

Nei­ther sec­tor will likely be able to match their strong 2012 lev­els of is­suance. Auto ABS is­suance is ex­pected to be lower in 2013 than it was in 2012 while credit card is­suance will not reach the his­tor­i­cal high that was set in 2012, ac­cord­ing to Moody’s.

“Although orig­i­na­tors of auto loans con­tinue to in­crease the con­cen­tra­tion of loans with ex­tended terms in new trans­ac­tions of up to 84 months, bor­rower qual­ity as mea­sured by credit scores re­mains con­sis­tent for both older and more re­cent vin­tages,” said Moody’s VP — Se­nior Credit Of­fi­cer Michael Buza­nis, au­thor of the report, “Cana­dian ABS and Cov­ered Bond: 2013 Out­look.”

“While we ex­pect sta­ble and strong auto ABS per­for­mance, a pe­riod of eco­nomic weak­ness or con­sumer credit stress would re­sult in higher de­fault and loss lev­els on loans that have ex­tended terms,” said Buza­nis. “Weak-but-pos­i­tive growth in the Cana­dian econ­omy and sta­ble un­em­ploy­ment rates will keep auto loan de­faults at cur­rent low lev­els through this year.”

The long-term rat­ings of bank spon­sors of credit card ABS re­main high, which sup­ports a sta­ble out­look for their re­lated credit card-backed ABS. Card col­lat­eral com­prises highly sea­soned ac­counts from prime qual­ity oblig­ors, which points to con­tin­ued strong per­for­mance. How­ever, the sec­tor will face a sta­ble-but-weak eco­nomic out­look and a Cana­dian un­em­ploy­ment rate that is not likely to de­cline so per­for­mance will not im­prove much fur­ther.

The credit qual­ity of

all

seven Cana­dian cov­ered bond pro­grams is sta­ble based on the strong fi­nan­cial stand­ing of the spon­sors and the high qual­ity of the res­i­den­tial mort­gage col­lat­eral, says the Moody’s report. Cana­dian cov­ered bond is­suers’ rat­ings were down­graded by the rat­ing agency in 2012 but are sta­ble at Aa3 or bet­ter lev­els and so the credit qual­ity of their cov­ered bonds will re­main sta­ble. At­trac­tive alternative fund­ing op­tions and the pur­chase by Royal Bank of Canada of auto ABS spon­sor Ally Credit Canada will dampen auto ABS is­suance in 2013, which, at about CAD1.5 bil­lion, will be lower than the 2012 level, says Moody’s.

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