Global Arab Network | Middle East - Securitisation Remains Under Pressure But Performance Volatility Likely To Decline

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Middle East - Securitisation Remains Under Pressure But Performance Volatility Likely To Decline

Posted by Mark Newton

Wednesday, 07 October 2009 12:38

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The performance of many asset classes in the Europe, Middle East and Africa (EMEA) securitisation sector will continue to deteriorate throughout the rest of the year and into 2011, says Moody's Investors Service in a new Special Report. The report examines the prospects of recovery for international securitisation in several asset classes and geographies: EMEA Auto ABS, UK Credit Card ABS, UK Non-Conforming RMBS, Spanish ABS and RMBS, Asia Pacific ABS and Global Derivatives. The rating agency expects performance volatility and uncertainty to decline in the coming months, although it cautions that a drop is predicated on achieving some level of economic moderation if not slight improvement, combined with the seasoning of securitised loan portfolios.

Moody's says that although GDP growth is expected to turn positive in many countries in EMEA later this year or in early 2010, employment and home prices will continue to deteriorate well into 2010, which will lead to securitised loan losses remaining at elevated levels throughout 2011 and 2012.

"While there appears to be a glimmer of light at the end of the tunnel, it is still too early to interpret improvement or slowed deterioration in a particular sector as a sign of recovery," says Frederic Drevon, Moody's Head of EMEA Securitisation. "When the securitisation markets do recover, it is uncertain what the level of receptivity will be and therefore what issuance volumes may be."

The rating agency believes that EMEA Auto ABS Performance will continue to deteriorate into 2011/2012. Although only moderate deterioration is expected in Germany, significant increases in losses, which have been accelerating over the past six months, are expected in the UK and Spain. Key performance factors will be the unemployment rate and used car prices.

"Moody's expects the performance of UK Credit Cards ABS to continue to deteriorate into the first half of 2011," says Jean Dornhofer, a Moody's Senior Vice President and co-author of the report. "Losses have accelerated over the past six months. The unemployment rate will again be a key performance factor in this sector."

Moody's also expects that deterioration in the performance of UK Non-Conforming RMBS will continue into 2011. Losses have accelerated over the past six months. The rating agency believes that home prices and the unemployment rate will be key performance factors for this sector.

The rating agency notes that Spanish ABS and RMBS performance is also likely to continue to deteriorate into 2011/2012. "Defaults have significantly increased over the past six months," says Barbara Rismondo, a Moody's Vice President -- Senior Credit Officer and co-author of the report. "For Spanish RMBS, Moody's believes that key performance factors will be the unemployment rate and home prices, while for Spanish consumer loan ABS it will be the unemployment rate. Meanwhile, Spanish SMEs performance will be influenced by the corporate insolvency rate."

Global Arab Network