Fitch Ratings: Coronavirus Pandemic Pressures Australian ABS Performance

(The following statement was released by the rating agency) Fitch Ratings-Sydney-15 June 2020: Fitch Ratings observed a minimal effect on auto ABS performance in 1Q20, as measures to contain the coronavirus pandemic in Australia only came into full effect in mid-March. Increases in arrears were primarily seasonal, with 30+ day arrears increasing by 41bp to 2.29% and 60+ day arrears rising by 17bp to 1.11%. Recoveries were also partially weaker, down to 36.4%, from 43.9% in the previous quarter, but were mostly driven by already-low consumer confidence from the start of the year. Payment rates also fell, with pressure on discretionary income during the post-holiday period likely to have contributed to the decline. We expect this trend to continue over the next six months following the implementation of payment deferral programmes by lenders and weakened borrower serviceability stemming from lower income for consumers and SMEs. Fitch expects arrears, default and recovery performance to weaken in the near-term as the full effect of pandemic-related measures wash through the economy. We believe transactions with a higher proportion of corporate/SME or self-employed exposure are the most likely to be affected, as businesses were temporarily shut or had limited capacity to operate during the containment period. Potential deterioration in performance should be partially mitigated by government stimulus and payment assistance provided by lenders. All the lenders in Fitch's ABS portfolio have announced assistance measures, typically in the form of hardship assistance programmes that offer partial or full payment deferrals for up to six months. Up to 10% of auto portfolios comprised loans where assistance had been granted as a result of pandemic-related hardship as of mid-to-late April. Payment holidays can also affect the liquidity of ABS transactions, but we do not expect our rated ABS transactions to experience liquidity shock, as most have multiple months of liquidity available to cover payment obligations using the current low rates. Current and historical Dinkum ABS Index data is available in Excel form in our report, Auto ABS Index - Australia: The Dinkum ABS Index - 1Q20, available at www.fitchratings.com or by clicking the link above. Contact: Marija Buzevska Senior Analyst +61 2 8256 0340 Fitch Australia Pty Ltd Suite 15.01, Level 15, 135 King Street Sydney NSW 2000 Australia Natasha Vojvodic Senior Director Head of Australian and New Zealand Structured Finance +61 2 8256 0350 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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