Pandemic Pressures ABS Performance Record High Delinquency:Both 30+ and 60+ day quarter-end arrears reached record highs of 2.7% and 1.7%, respectively, by end-2Q20. The increase in delinquencies reflects the impact of the coronavirus pandemic on individual borrower and business income; payment assistance provided by lenders has been mitigating some of the impact on borrowers. Higher arrears are also partly attributable to the reduced size of the index, as ABS issuance ceased at the start of the pandemic.
Spikes in 30+ day arrears are a result of a small number of lenders who reported COVID-19-affected loans as arrears. This provides some insight into future performance, although Fitch Ratings expects the full effect of the pandemic to be delayed past 1Q21, following the cessation of payment assistance and government support that offset some of the near-term performance deterioration.
At end-July 2020, about 7.7% of the outstanding auto portfolio was granted assistance for pandemic-related hardship. Assistance varied, with the majority of lenders providing full payment deferrals for three to six months and a smaller portion offering reduced repayments.
Loss Performance to Worsen: Annualised net losses increased to 0.6% in 2Q20, but remained in line with historically observed figures, down 2bp from the same time last year. Even so, Fitch expects arrears, defaults and recovery performance to weaken in the near term, as the extended lockdown in Victoria, ongoing restrictions and border closures continue to hurt the economy. Transactions with a higher proportion of corporate, SME or self-employed exposure are more likely to be affected, as businesses have been shut temporarily or have limited capacity to operate.
Strong Recoveries: Recoveries reached 44.2% by end-2Q20, above the five-year average of 39.0%. The rebound in recoveries indicates a strengthening in the used-car market as new-vehicle sales continued to contract. The used-car market is also partially boosted by pandemic-related factors affecting demand, including the government’s instant asset write-off policy and a shift in customer preference toward second-hand vehicles as an alternative to public transport due to socialdistancing measures and the potential risk of infection.
Support income about to be gutted. Full report.