2011 Outlook： Non‐Japan Asia Structured Finance
Structured Finance www.fitchratings.com 15February2011 Asia (ExJapan) OutlookReport 2011 Outlook: Non‐Japan Asia Structured Finance Rating Outlook Stable Performance of Non‐Japan Asia Structured Finance (SF) Set to Continue: Fitch Ratings expects most outstanding SF ratings to be stable in 2011. Key performance indicators such as delinquencies, payment rates and default rates (for ABS and RMBS) and debt service coverage ratios (for CMBS) are in line with expectations. Economies to Grow Steadily: Non‐Japan Asian economies covered in this report, namely Korea, Singapore, Taiwan and Thailand, are expected to experience stable growth, with lower unemployment expected in 2011 than last year. Stable Korean ABS and RMBS Performance: Delinquencies and losses are well managed and have fallen to levels seen before the 2008 financial crisis. Fitch expects this trend to continue in 2011, based on the agency’s observation on originators’ prudent underwriting policies and sound collection track records for outstanding Korean ABS and RMBS. Singapore Properties to Gain Stronger Cash Flow: The retail and hotel sectors have demonstrated improving asset performance and are expected to attract more tourists and commercial activities in 2011. Occupancy rates and rental levels for the office sector have seen a gradual rebound since 2008. Fitch therefore expects the cash flow earned on Singapore properties to be more sustainable in 2011. What Could Change the Outlook ∑ Non‐Japan Asia RMBS, Credit Card and Auto Loan ABS: Should they occur, factors that could drive a negative outlook include: (1) the mortgage rate rising considerably before the Korean economy has fully recovered (Korean RMBS); (2) credit card yields dropping dramatically to attract borrowers due to strong competition in the credit card industry (Korean credit card ABS); (3) unexpected changes in underwriting policies for auto loan originators (Korean auto loan ABS); and (4) a decline in payment rates along with a surge in delinquencies and default rates due to the deteriorating credit quality of low‐ to middle‐income credit card holders, who are more sensitive to changes in economic conditions (Thailand credit card ABS). ∑ Singapore CMBS and REITs: Singapore’s economy is closely linked to global economic developments due to being small and dependent on trade. If the global economy were in recession, the occupancy rates and rental levels of the entrusted or invested properties in Singapore CMBS and Singapore REITs (S‐ REITs) may deteriorate, and hence diminish the cash flow generated. Moreover, liquidity in the bank loan markets and equity market valuations may also be unfavourable to S‐REITs and in turn change the rating Outlooks to Negative. ∑ Taiwan REATs and REITs: The Negative Outlook placed on the REIT and the RWN placed on the REAT may be removed if the portfolios’ occupancy rates can be raised such that the replenished cash flow of the portfolios can be sustainable at their current rating levels. ∑ CDOs: For Asian balance‐sheet CDOs and Taiwanese national ABCP, downward pressure on the ratings would come from an unexpected deterioration in the Asian economies. On the other hand, a positive outlook could also be possible, and it will result from continuing deleveraging, which boosts credit enhancement (CE) for the notes. Analysts Stan Ho +852 2263 9668 stan.ho@fitchratings.com April Chen +852 2263 9936 april.chen@fitchratings.com Hong Kong Kate Lin +852 2263 9912 kate.lin@fitchratings.com Seoul Keum Hee Oh +82 2 3278 8373 keumhee.oh@fitchratings.com Taipei Tino Jang +886 2 8175 7611 tino.jang@fitchratings.com Bangkok Orawan Karoonkornsakul +662 655 4766 orawan.karoonkornsakul@fitchratings.com Related Research Applicable Criteria ∑ Global Structured Finance Rating Criteria (August 2010) ∑ Global Credit Card ABS Rating Criteria (June 2010) ∑ Criteria for Existing Asset Securitization in Emerging Markets: Sovereign Constraints (June 2010) Other Research ∑ Global Economic Outlook: No Major Surprises in Global Recover (December 2010) ∑ 2009 Asia ‐Pacific Structured Finance Transition & Default Study & H210 Performance Outlook (June 2010) ∑ Fitch Ratings Global Structured Finance 2009 Transition and Default Study (March 2010) Other Outlooks ∑ www.fitchratings.com/outlooks Structured Finance 2011 Outlook: Non‐Japan Asia Structured Finance February 2011 2 Key Issues Pressure from Upward Interest Rate Trend:Fitch expects GDP growth for the four non‐ Japan Asia countries covered in this report to be at least 3.7% in 2011, with a low average unemployment rate at below 5%. Steady growth and low interest rates in these countries promote stable performance of the underlying assets. However, concerns may arise should interest rates be used as a tool to curb inflation and where a rise in interest rates outpaces economic growth, leading to weakened priv
