Produced by Aaron Lei for S&P Global on January 23, 2019
Macro pressures threaten to dampen industry performance in China. The normalization of economic growth, reduced liquidity due to policy-driven credit adjustments, uncertainty from trade tensions with the United States, and rising overseas interest rates all represent impending industry hurdles for the Chinese economy in 2019. These factors, however, are unlikely to significantly affect the country’s securitization market. The nation’s improving debt serviceability, enhanced underwriting and risk control, and strong structural protections should support robust performance in retail securitization. S&P Global Ratings anticipates moderate issuance growth and steady asset performance.
Growth in securitization issuance is driven by strong numbers in residential mortgage backed security (RMBS) and corporate receivables securitization. Robust demand for auto loan asset-backed securities (ABS) also boosted market issuance. Banks regained their position in securitization issuance in China, with RMBS accounting for almost half of new offerings.
Asset performance is expected to remain consistent with 2018 rates. Retail securitizations demonstrated strong performance. Stable employment, rising household income and wealth, shorter loan tenors, and the full-amortization nature of most loans supported debt serviceability in ABS and RMBS sectors and should continue to do so through the new year.
New issuance in the China securitization market increased 36% in 2018. Valued at $2 trillion and growing faster than global peers, securitization will remain an important financing channel for the Chinese economy in 2019. Specifically, property sector receivables, auto loan ABS, unsecured consumer loan ABS, and lease receivables securitization will continue to provide important funding to related corporates and financiers.
As China’s securitization market becomes increasingly demand-driven, S&P Global believes that greater investor diversity and enhanced transparency will be key for sustainable development. The market must expand its investor base to include more real-money investment institutions, such as insurance companies that accumulate assets under management quickly. Currently, less transparent asset information and the post-issuance performance record are the largest hurdles preventing new insurers from entering into the market. These investors need the long-term credit stability of transactions as they tend to hold their investments to maturity.
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