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Moody's - Coronavirus shock highlights asset quality differences in auto loan ABS between foreign and domestic lender in China

·24 mins read

<!DOCTYPE html> <html lang="" xml:lang=""> <head> <title>/nwsys/www/images/PBS_1243818</title> <meta http-equiv="Content-Type" content="text/html; charset=UTF-8"/> <meta name="generator" content="pdftohtml 0.36"/> <meta name="date" content="2020-09-02T03:20:14+00:00"/> <style type="text/css"> <!-- .xflip { -moz-transform: scaleX(-1); -webkit-transform: scaleX(-1); -o-transform: scaleX(-1); transform: scaleX(-1); filter: fliph; } .yflip { -moz-transform: scaleY(-1); -webkit-transform: scaleY(-1); -o-transform: scaleY(-1); transform: scaleY(-1); filter: flipv; } .xyflip { -moz-transform: scaleX(-1) scaleY(-1); -webkit-transform: scaleX(-1) scaleY(-1); -o-transform: scaleX(-1) scaleY(-1); transform: scaleX(-1) scaleY(-1); filter: fliph + flipv; } --> </style> </head> <body bgcolor="#A0A0A0" vlink="blue" link="blue"> <!-- Page 1 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;} .ft00{font-size:18px;font-family:Times;color:#000000;} .ft01{font-size:18px;font-family:Times;color:#1257c7;} .ft02{font-size:13px;font-family:Times;color:#0d0c0c;} .ft03{font-size:13px;font-family:Times;color:#000000;} .ft04{font-size:13px;font-family:Times;color:#1b62b7;} .ft05{font-size:13px;line-height:30px;font-family:Times;color:#0d0c0c;} --> </style> <div id="page1-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBS_1243818001.png" alt="background image"/> <p style="position:absolute;top:155px;left:108px;white-space:nowrap" class="ft00"><b>Research Announcement:&#160;</b></p> <p style="position:absolute;top:155px;left:364px;white-space:nowrap" class="ft01"><b>Moody's - Coronavirus shock highlights asset</b></p> <p style="position:absolute;top:180px;left:108px;white-space:nowrap" class="ft01"><b>quality differences in auto loan ABS between foreign and domestic</b></p> <p style="position:absolute;top:204px;left:108px;white-space:nowrap" class="ft01"><b>lender in China</b></p> <p style="position:absolute;top:240px;left:108px;white-space:nowrap" class="ft02">Hong Kong, September 02, 2020 --</p> <p style="position:absolute;top:271px;left:108px;white-space:nowrap" class="ft03">»&#160;Delinquency rates for auto loan ABS by foreign-owned AFCs improved quicker due to better</p> <p style="position:absolute;top:290px;left:127px;white-space:nowrap" class="ft03">quality of underlying loans</p> <p style="position:absolute;top:320px;left:108px;white-space:nowrap" class="ft03">»&#160;But the performance gap will narrow again as the economy recovers</p> <p style="position:absolute;top:356px;left:108px;white-space:nowrap" class="ft02">Moody’s Investors Service says in a new report that the economic shock caused by the coronavirus</p> <p style="position:absolute;top:376px;left:108px;white-space:nowrap" class="ft02">pandemic has exposed the intrinsic differences in securitized asset quality between foreign-owned</p> <p style="position:absolute;top:395px;left:108px;white-space:nowrap" class="ft05">and domestic auto finance companies (AFCs) in China.<br/>“Delinquency rates for auto loan asset-backed securities (ABS) increased sharply in January and</p> <p style="position:absolute;top:445px;left:108px;white-space:nowrap" class="ft02">February amid coronavirus disruptions, but as economic activity picked up in March, delinquencies</p> <p style="position:absolute;top:464px;left:108px;white-space:nowrap" class="ft02">improved more swiftly for foreign-owned AFCs than for domestically-owned AFCs, reflecting the</p> <p style="position:absolute;top:484px;left:108px;white-space:nowrap" class="ft02">higher credit quality of underlying loans,” says Kan Leung, a Moody’s Vice President and Senior</p> <p style="position:absolute;top:503px;left:108px;white-space:nowrap" class="ft05">Analyst.<br/>One key reason for this is that for ABS deals by foreign-owned AFCs, underlying borrowers' incomes</p> <p style="position:absolute;top:553px;left:108px;white-space:nowrap" class="ft02">are much higher on average than those by domestically-owned AFCs. These borrowers can</p> <p style="position:absolute;top:573px;left:108px;white-space:nowrap" class="ft05">generally deal with periods of economic stress better than those with lower incomes.<br/>In addition, foreign-owned AFCs have longer operating histories in China than domestically-owned</p> <p style="position:absolute;top:622px;left:108px;white-space:nowrap" class="ft02">AFCs, which have enabled them to accumulate more comprehensive customer and credit data.</p> <p style="position:absolute;top:642px;left:108px;white-space:nowrap" class="ft02">This, along with their ability to leverage overseas shareholders’ consumer finance expertise, has</p> <p style="position:absolute;top:661px;left:108px;white-space:nowrap" class="ft05">supported their underwriting decision-making and loan quality.<br/>Moody’s expects the performance gap between foreign and domestically-owned AFC ABS to narrow</p> <p style="position:absolute;top:711px;left:108px;white-space:nowrap" class="ft02">and stabilize as the economy gradually recovers, although delinquency rates for the entire sector will</p> <p style="position:absolute;top:731px;left:108px;white-space:nowrap" class="ft05">stay higher than in 2019, given that economic activity will remain below potential.<br/>Subscribers can access the report “Auto ABS - China: Coronavirus shock highlights asset</p> <p style="position:absolute;top:781px;left:108px;white-space:nowrap" class="ft02">quality differences between foreign and domestic lender deals” at:&#160;</p> <p style="position:absolute;top:781px;left:571px;white-space:nowrap" class="ft04">http://www.moodys.com/</p> <p style="position:absolute;top:800px;left:108px;white-space:nowrap" class="ft04">researchdocumentcontentpage.aspx?docid=PBS_1241717</p> <p style="position:absolute;top:830px;left:108px;white-space:nowrap" class="ft02">NOTE TO JOURNALISTS ONLY: For more information, please call one of our global</p> <p style="position:absolute;top:850px;left:108px;white-space:nowrap" class="ft02">press information hotlines: New York <PhoneNo>+1-212-553-0376</PhoneNo>, London <PhoneNo>+44-20-7772-5456</PhoneNo>, Tokyo</p> <p style="position:absolute;top:869px;left:108px;white-space:nowrap" class="ft02"><PhoneNo>+813-5408-4110</PhoneNo>, Hong Kong <PhoneNo>+852-3758-1350</PhoneNo>, Sydney <PhoneNo>+61-2-9270-8141</PhoneNo>, Mexico City</p> <p style="position:absolute;top:889px;left:108px;white-space:nowrap" class="ft02"><PhoneNo>001-888-779-5833</PhoneNo>, São Paulo <PhoneNo>0800-891-2518</PhoneNo>, or Buenos Aires <PhoneNo>0800-666-3506</PhoneNo>. 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Any rating assigned by MCO or any of its majority-owned affiliates: (1) does not</p> <p style="position:absolute;top:978px;left:108px;white-space:nowrap" class="ft02">constitute a rating as required under any relevant PRC laws or regulations; (2) cannot be included</p> <p style="position:absolute;top:997px;left:108px;white-space:nowrap" class="ft02">in any registration statement, offering circular, prospectus or any other documents submitted to the</p> <p style="position:absolute;top:1017px;left:108px;white-space:nowrap" class="ft02">PRC regulatory authorities; and (3) cannot be used within the PRC for any regulatory purpose or for</p> <p style="position:absolute;top:1036px;left:108px;white-space:nowrap" class="ft02">any other purpose which is not permitted under relevant PRC laws or regulations. For the purposes</p> </div> <!-- Page 2 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;} .ft06{font-size:13px;line-height:23px;font-family:Times;color:#0d0c0c;} --> </style> <div id="page2-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBS_1243818002.png" alt="background image"/> <p style="position:absolute;top:114px;left:108px;white-space:nowrap" class="ft02">of this paragraph, &#34;PRC&#34; refers to the mainland of the People's Republic of China, excluding Hong</p> <p style="position:absolute;top:133px;left:108px;white-space:nowrap" class="ft05">Kong, Macau and Taiwan.<br/>This publication does not announce a credit rating action. For any credit ratings referenced in this</p> <p style="position:absolute;top:183px;left:108px;white-space:nowrap" class="ft02">publication, please see the ratings tab on the issuer/entity page on&#160;</p> <p style="position:absolute;top:183px;left:574px;white-space:nowrap" class="ft04">www.moodys.com</p> <p style="position:absolute;top:183px;left:701px;white-space:nowrap" class="ft02">&#160;for the most</p> <p style="position:absolute;top:202px;left:108px;white-space:nowrap" class="ft05">updated credit rating action information and rating history.<br/>Kan Leung, CFA</p> <p style="position:absolute;top:252px;left:108px;white-space:nowrap" class="ft02">VP-Senior Analyst</p> <p style="position:absolute;top:272px;left:108px;white-space:nowrap" class="ft02">Structured Finance Group</p> <p style="position:absolute;top:291px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service Hong Kong Ltd.</p> <p style="position:absolute;top:311px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 852 3758 1350</p> <p style="position:absolute;top:330px;left:108px;white-space:nowrap" class="ft05">Client Service: 852 3551 3077<br/>Marie Lam</p> <p style="position:absolute;top:380px;left:108px;white-space:nowrap" class="ft02">Associate Managing Director</p> <p style="position:absolute;top:399px;left:108px;white-space:nowrap" class="ft02">Structured Finance Group</p> <p style="position:absolute;top:419px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service Hong Kong Ltd.</p> <p style="position:absolute;top:438px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 852 3758 1350</p> <p style="position:absolute;top:458px;left:108px;white-space:nowrap" class="ft05">Client Service: 852 3551 3077<br/>Releasing Office:</p> <p style="position:absolute;top:508px;left:108px;white-space:nowrap" class="ft02">Moody's Investors Service Hong Kong Ltd.</p> <p style="position:absolute;top:527px;left:108px;white-space:nowrap" class="ft02">24/F One Pacific Place</p> <p style="position:absolute;top:547px;left:108px;white-space:nowrap" class="ft02">88 Queensway</p> <p style="position:absolute;top:566px;left:108px;white-space:nowrap" class="ft02">Hong Kong</p> <p style="position:absolute;top:586px;left:108px;white-space:nowrap" class="ft02">China (Hong Kong S.A.R.)</p> <p style="position:absolute;top:605px;left:108px;white-space:nowrap" class="ft02">JOURNALISTS: 852 3758 1350</p> <p style="position:absolute;top:625px;left:108px;white-space:nowrap" class="ft02">Client Service: 852 3551 3077</p> <p style="position:absolute;top:714px;left:108px;white-space:nowrap" class="ft02">© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their</p> <p style="position:absolute;top:734px;left:108px;white-space:nowrap" class="ft06">licensors and affiliates (collectively, “MOODY’S”). 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However, MOODY’S is not an auditor and cannot</p> <p style="position:absolute;top:768px;left:108px;white-space:nowrap" class="ft02">in every instance independently verify or validate information received in the rating process or in</p> <p style="position:absolute;top:787px;left:108px;white-space:nowrap" class="ft06">preparing its Publications.<br/>To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,</p> <p style="position:absolute;top:830px;left:108px;white-space:nowrap" class="ft02">representatives, licensors and suppliers disclaim liability to any person or entity for any indirect,</p> <p style="position:absolute;top:849px;left:108px;white-space:nowrap" class="ft02">special, consequential, or incidental losses or damages whatsoever arising from or in connection</p> <p style="position:absolute;top:869px;left:108px;white-space:nowrap" class="ft02">with the information contained herein or the use of or inability to use any such information, even if</p> <p style="position:absolute;top:888px;left:108px;white-space:nowrap" class="ft02">MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers</p> <p style="position:absolute;top:908px;left:108px;white-space:nowrap" class="ft02">is advised in advance of the possibility of such losses or damages, including but not limited to:</p> <p style="position:absolute;top:927px;left:108px;white-space:nowrap" class="ft02">(a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant</p> <p style="position:absolute;top:947px;left:108px;white-space:nowrap" class="ft06">financial instrument is not the subject of a particular credit rating assigned by MOODY’S.<br/>To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,</p> <p style="position:absolute;top:989px;left:108px;white-space:nowrap" class="ft02">representatives, licensors and suppliers disclaim liability for any direct or compensatory losses</p> <p style="position:absolute;top:1009px;left:108px;white-space:nowrap" class="ft02">or damages caused to any person or entity, including but not limited to by any negligence (but</p> <p style="position:absolute;top:1028px;left:108px;white-space:nowrap" class="ft02">excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt,</p> <p style="position:absolute;top:1048px;left:108px;white-space:nowrap" class="ft02">by law cannot be excluded) on the part of, or any contingency within or beyond the control of,</p> </div> <!-- Page 4 --> <style type="text/css"> <!-- p {margin: 0; padding: 0;}--> </style> <div id="page4-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBS_1243818004.png" alt="background image"/> <p style="position:absolute;top:114px;left:108px;white-space:nowrap" class="ft02">MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,</p> <p style="position:absolute;top:133px;left:108px;white-space:nowrap" class="ft02">arising from or in connection with the information contained herein or the use of or inability to use</p> <p style="position:absolute;top:153px;left:108px;white-space:nowrap" class="ft06">any such information.<br/>NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,</p> <p style="position:absolute;top:195px;left:108px;white-space:nowrap" class="ft02">COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF</p> <p style="position:absolute;top:215px;left:108px;white-space:nowrap" class="ft02">ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE</p> <p style="position:absolute;top:234px;left:108px;white-space:nowrap" class="ft06">BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.<br/>Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s</p> <p style="position:absolute;top:277px;left:108px;white-space:nowrap" class="ft02">Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and</p> <p style="position:absolute;top:296px;left:108px;white-space:nowrap" class="ft02">municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s</p> <p style="position:absolute;top:316px;left:108px;white-space:nowrap" class="ft02">Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s</p> <p style="position:absolute;top:335px;left:108px;white-space:nowrap" class="ft02">Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from</p> <p style="position:absolute;top:355px;left:108px;white-space:nowrap" class="ft02">$1,000 to approximately $2,700,000. MCO and Moody’s Investors Service also maintain policies</p> <p style="position:absolute;top:374px;left:108px;white-space:nowrap" class="ft02">and procedures to address the independence of Moody’s Investors Service credit ratings and credit</p> <p style="position:absolute;top:394px;left:108px;white-space:nowrap" class="ft02">rating processes. Information regarding certain affiliations that may exist between directors of MCO</p> <p style="position:absolute;top:413px;left:108px;white-space:nowrap" class="ft02">and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and</p> <p style="position:absolute;top:433px;left:108px;white-space:nowrap" class="ft02">have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted</p> <p style="position:absolute;top:452px;left:108px;white-space:nowrap" class="ft02">annually at&#160;</p> <p style="position:absolute;top:452px;left:188px;white-space:nowrap" class="ft04">www.moodys.com</p> <p style="position:absolute;top:452px;left:315px;white-space:nowrap" class="ft02">&#160;under the heading “Investor Relations — Corporate Governance —</p> <p style="position:absolute;top:472px;left:108px;white-space:nowrap" class="ft06">Director and Shareholder Affiliation Policy.”<br/>Additional terms for Australia only: Any publication into Australia of this document is pursuant to the</p> <p style="position:absolute;top:514px;left:108px;white-space:nowrap" class="ft02">Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited</p> <p style="position:absolute;top:534px;left:108px;white-space:nowrap" class="ft02">ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136</p> <p style="position:absolute;top:553px;left:108px;white-space:nowrap" class="ft02">972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale</p> <p style="position:absolute;top:573px;left:108px;white-space:nowrap" class="ft02">clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access</p> <p style="position:absolute;top:592px;left:108px;white-space:nowrap" class="ft02">this document from within Australia, you represent to MOODY’S that you are, or are accessing</p> <p style="position:absolute;top:612px;left:108px;white-space:nowrap" class="ft02">the document as a representative of, a “wholesale client” and that neither you nor the entity you</p> <p style="position:absolute;top:631px;left:108px;white-space:nowrap" class="ft02">represent will directly or indirectly disseminate this document or its contents to “retail clients” within</p> <p style="position:absolute;top:651px;left:108px;white-space:nowrap" class="ft02">the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as</p> <p style="position:absolute;top:670px;left:108px;white-space:nowrap" class="ft02">to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or</p> <p style="position:absolute;top:690px;left:108px;white-space:nowrap" class="ft06">any form of security that is available to retail investors.<br/>Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency</p> <p style="position:absolute;top:732px;left:108px;white-space:nowrap" class="ft02">subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc.,</p> <p style="position:absolute;top:752px;left:108px;white-space:nowrap" class="ft02">a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating</p> <p style="position:absolute;top:771px;left:108px;white-space:nowrap" class="ft02">agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization</p> <p style="position:absolute;top:791px;left:108px;white-space:nowrap" class="ft02">(“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-</p> <p style="position:absolute;top:810px;left:108px;white-space:nowrap" class="ft02">NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated</p> <p style="position:absolute;top:830px;left:108px;white-space:nowrap" class="ft02">obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit</p> <p style="position:absolute;top:849px;left:108px;white-space:nowrap" class="ft02">rating agencies registered with the Japan Financial Services Agency and their registration numbers</p> <p style="position:absolute;top:869px;left:108px;white-space:nowrap" class="ft06">are FSA Commissioner (Ratings) No. 2 and 3 respectively.<br/>MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including</p> <p style="position:absolute;top:911px;left:108px;white-space:nowrap" class="ft02">corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated</p> <p style="position:absolute;top:931px;left:108px;white-space:nowrap" class="ft02">by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to</p> <p style="position:absolute;top:950px;left:108px;white-space:nowrap" class="ft02">MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging</p> <p style="position:absolute;top:970px;left:108px;white-space:nowrap" class="ft06">from JPY125,000 to approximately JPY250,000,000.<br/>MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory</p> <p style="position:absolute;top:1012px;left:108px;white-space:nowrap" class="ft02">requirements.</p> </div> </body> </html>