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China ABS performance slips amid lockdowns
Fitch lowers economic growth forecast to 3.7%, auto loan ABS outlook to deteriorating
The Asset 17 Aug 2022

The performance of Chinese structured finance assets deteriorated in 2Q22 due to lockdowns designed to contain the Covid-19 pandemic, in line with expectations, although the magnitude has been modest in absolute terms, according to a recent report.

The annualised gross loss (AGL) ratio of auto loan asset-backed securities (ABS) edged up to 0.45% in June from 0.37% in March, notes the Fitch Ratings report. The ratio for residential mortgage-backed securities peaked in May at 0.40% but quickly retreated to 0.28% by end-2Q22, and most consumer ABS transactions included in Fitch Ratings' 2Q22 indices saw a notable increase in the AGL.

While the worst of the lockdowns may be over, the Fitch commentary notes that “we remain cautious about the performance outlook across asset classes, considering the possibility of new outbreaks and lockdowns, uncertainties around the resolution of recent mortgage boycotts over uncompleted properties, weakness in the housing and job markets as well as slowing economic growth.”

Fitch has lowered its growth forecast for China’s economy from 4.8% to 3.7%, and revised the sector outlook for auto loan ABS to deteriorating from neutral. The rating agency adds that it still expects the overall magnitude of performance deterioration in the sector to be limited and senior asset classes to remain well protected from performance volatility.

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