GCR Ratings Expects Interest Rate Cut to Support an Already Resilient Asset Performance
July 2019 – The South African Reserve Bank (“SARB”) lowered the Repo rate by
25bps on 18 July 2019. While such decrease, albeit moderate, should free up
cash for the consumer, it is viewed as positive by GCR Ratings (“GCR”) to the
extent that the monies are used towards deleveraging consumers’ debt as opposed
to debt-generating consumption.
With a household
debt to disposable income ratio oscillating around 75% and a debt service cost
to disposable income ratio above 9%, borrowers remain vulnerable to increased
expenses and to incurring further debt. It is important to note, however, that
the performance of the securitisations rated by GCR across various
consumer-related asset classes (in which Equipment lease transactions are
included) has remained stable since early 2018. The month-to-month (m.m.) variation
in non-performing loans (“NPLs”) in such transactions has been moderate over
the period. As expected, such variation is the lowest for Residential
Mortgage-Back Securitisations (“RMBS”) (0.02% m.m. increase in NPLs) and the
highest for micro loans, although still moderate (0.2% m.m. increase).
Apart from equipment lease and micro loan transactions, GCR does not
note a significant change in the m.m variation of NPLs (albeit such variation
remains low) since the last increase in interest rates by the SARB in November
2018. With the recent reduction in interest rates, GCR expects the performance
of securitisations it rates to be sustained across consumer-related asset
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.