China's Structured Finance Faces More Risk as Economy Slows, Moody's Says
Xu Wei
/SOURCE : yicai
China's Structured Finance Faces More Risk as Economy Slows, Moody's Says

(Yicai Global) Dec. 2 -- Loan delinquency and default rates will rise from low levels in most of China's structured finance asset classes next year, driven by slowing economic growth, trade tensions and rising household debt, Moody's Investors Service said in a report today.

Moody's expects delinquency and default rates of Chinese asset-backed securities financed by auto loans, ABS backed by consumer debt and collateralized loan obligations to climb a little next year, but those of residential mortgage-backed securities will stabilize at a low level, Moody's Vice President and Senior Credit Rating Officer Wu Yuning said in the report.

Delinquency and default rates of ABS backed by auto loans will rise slightly, and the quality of newly issued loans is generally better. But sluggish vehicle sales could prompt some auto finance companies to embrace looser loan review standards, the report said.

RMBSs are expected to show the strongest performance among all asset classes because of the outstanding quality of basic loans and the tightly regulated housing mortgage market, Moody's said, adding that newly issued home loans are expected to be of good quality thanks to policies aimed at curbing market speculation.

ABSs backed by consumer debt are likely to be the weakest performer because new loans are generally low-quality unsecured loans. Low-quality consumer borrowers are more likely to miss payments or default than borrowers in other structured asset classes as the economy slows.

Moody's predicts a weaker performance in CLO stock trading, but the quality of newly issued debt is expected to be generally good as banks tighten lending approval standards, as per regulators' requirements.

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Keywords: Moody’s