The performance of Asian securitised transactions immediately preceding the financial crisis has remained stable across most asset classes. There were no material downgrades in ratings levels for Asian securitised debt that could be attributed to underlying collateral performance during this period.
Despite spikes in the delinquency rates at the peak of the financial crisis, the underlying transactions’ performance returned to nor-mal levels within the year. This was due to the crisis’ limited impact on unemployment rates and the region’s strong economic recovery.
The ratings stability for securitised debt can be attributed to the fact that most Asian securitised debt is collateralised by consumer assets. They have also benefited from lower unemployment rates coupled with high economic growth rates from the Asian (ex-Japan) economies. These have helped contribute to the stable performance levels, especially compared to the US and European markets – which suffered from sustained declines in housing markets, concerns about refinancing needs for commercial mortgage-backed securities (CMBSs), high unemployment and increased sovereign debt concerns.
The underlying asset classes of securitised debt have also shifted in the aftermath of the financial crisis. We now see transactions that are less exotic and more vanilla. Common asset classes now include residential mortgages loans, credit cards and auto loans, although these asset classes differ geographically. For example, South Korean markets are dominated by offshore and local currency credit card, auto loan asset-backed security (ABS) and residential mortgage loan transactions, while India has an active local currency securitisation market, with commercial vehicles, construction equipment and residential mortgages being common underlying asset categories. In Singapore, the securitised debt market is mostly CMBSs with increasing consumer ABS issuances.
We have also observed interest in the securitisation of accounts or trade receiv-ables and equipment lease receivables, as these institutions seek to optimise their capital and risk management.
With Asian securitised debt in particular, investments are in their most basic form. Investors purchase those with exposure to underlying performance indicators of Asian growth, namely consumer consumption – as in consumer finance receivables and trade and equipment lease receivables. This also reflects the manufacturing and export bias as well as the sustained construction boom in Asia.
New asset classes have been introduced in the region, including covered bonds and covered bond-like transactions. New Zealand and South Korea have already taken the first steps in that direction with the launch of their transactions. In the meantime, potential issuers in other jurisdictions continue to explore options in this area.
We expect this market to continue on a sharp growth trajectory, and high interest to remain in this asset category. With impending Basel III regulations, this asset class is likely to have a positive impact on the issuing banks’ funding and liquidity profiles, as well as on asset liability management. In addition, we also expect issuers and investors to retain a high level of interest in cashflow collateralised loan obligations and expect to see more market activity in the area.
As global financial markets adjust to the introduction of new regulatory reforms, reliance on alternative sources of capital raisings and risk management tools will continue to increase. This supports the notion that there will be a revival in the Asian securitised debt markets. Only time will tell if this will finally lead to the growth of securitised debt in Asia.
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