Announcements Research

Structured Finance Trends: 2019 Review and 2020 Outlook

Summary

20 March 2020 – GCR Ratings (“GCR”) has published a bulletin on Structured Finance performance trends observed the South African Residential Mortgage Backed Securities (RMBS), Auto Asset Backed Securities (Auto ABS), Microloan ABS and Equipment Lease ABS. The update is available for download at Industry Reports.

2019 In Summary

  • The securitisations rated by GCR exhibited resilient performance with no reported trigger or covenant breached and no performance-related rating downgrades.
  • Distressed economic environment with greater pressure placed on consumer disposable income and employment, although the leverage and debt servicing of households was slowly improving.

2020 Outlook

  • The outlook for the Residential Mortgage Backed Securities (RMBS) is expected to be stable. A cautiously stable outlook is expected for the Auto Asset Backed Securities (Auto ABS) and Microloan ABS (including developmental credit), while some performance pressure is expected for Equipment Lease ABS.
  • 2020 is shaping up to be an even more challenging year than 2019 and, of course, the exact local and global impact of the COVID-19 pandemic is currently unknown. However, to date, GCR have assumed a severe stress environment will extend through the period laid down by the timelines of the National Disaster, i.e. up to 15th June 2020. The type of stress is based on the reduction of economic activity reflecting a fall in consumer spending and negative business sentiment caused by travel restrictions, large scale self-isolations, quarantines and social distancing measures in effect in South Africa and globally.

Specifically, we are assuming that South African corporates and individuals exposed to hospitality, tourism and discretionary retail will be hit hardest (economically) and it will exacerbate already significant weaknesses in the economy. GCR believes that the significant 100bps interest rate cut will provide little impetus for growth in Q2’20 but it should further help debt serviceability of the private sector and could provide more stimulus in the 2nd half of 2020. See the “GCR Lowers its Corporate Sector Risk Scores for South African Hospitality, Gaming and Discretionary Retail in Light of the COVID-19 Crisis.” and “Sustained Economic Headwinds compounded by COVID-19 Risks Will Pressure South African Banks Earnings & Asset Quality in 2020” publications for more details.

Analytical Contacts

Gary Nyoni Structured Finance Analyst
GaryN@GCRratings.com +27 11 784 1771
Vuyisile Madlebe Structured Finance Analyst
VuyisileM@GCRratings.com +27 11 784 1771
Yohan Assous Sector head: Structured Finance Ratings
Yohan@GCRratings.com +27 11 784 1771
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