Fitch Ratings Sees Brazil’s Consumer ABS Deteriorating in 2009

    US Dollar

    US Dollar Fitch Ratings says that it expects the performance of Brazil's outstanding consumer asset-backed securities (ABS) to continue deteriorating throughout this year. The American company has released a special report on Brazilian ABS performance deterioration and transaction structural inefficiencies.

    The report places particular focus on how the voluntary support of originators/servicers is masking true asset performance and how liquidity pressures on these institutions heightens the need to better understand the underlying assets' credit quality.

    This report follows up to Fitch's previous research reports on the concerns over Brazilian Consumer ABS, particularly asset transfers at substantial gain-on-sale and originator/servicer flexibility to manage portfolio performance with very low transparency.

    "Transaction-specific gain-on-sale levels and originator flexibility to manage pool performance are more important today than they were before while consumer credit delinquencies are on the rise and originator liquidity is tight," said Jayme Bartling, Fitch Senior Director and Head of Brazilian Structured Finance.

    "Transactions more dependent on the originator might start showing sudden spikes in delinquencies, as it is going to be harder to repurchase or substitute loans now, with this always being a risk in Brazilian Consumer ABS." Bartling added, "true enhancement levels of transactions in the market are being overstated by as much as 300% in specific cases, but by at least 70%-80% on average."

    In support of this view the report provides data on Fitch-rated transaction performance metrics with and without loan repurchases. The data evidences how repurchases can affect the overall risk perception of the underlying asset portfolio.

    While Fitch does not anticipate severe deterioration in consumer loan performance, delinquency and repurchase figures strongly illustrate that the sector is moving away from the "base case" scenario. This expectation is confirmed through delinquency data on consumer loans in the financial system.

    "Fitch recognizes repurchasing bad loans can be at times beneficial to the overall risk profile of the transaction. However, the way originators and servicers approach this can sometimes be characterized as against the nature of securitization," said Greg Kabance, Managing Director and Head of Latin America Structured Finance.

    According to Kabance, the repurchase of loans, or oftentimes just the delinquent loan installments, can increase the valuation of the collateral which can prevent a transaction from triggering and allow the release of excess cash to equity holders.

    The special report, Brazilian Consumer ABS – Fact or Fiction?, is now available on the Fitch web site at www.fitchratings.com.

    Tags:

    • Show Comments (0)

    Your email address will not be published. Required fields are marked *

    comment *

    • name *

    • email *

    • website *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Ads

    You May Also Like

    Dictatorship in Brazil

    Tortured by the Military Former Brazilian Prisoners Want Truth Commission

    Former Brazilian radical militants who were tortured during the Brazilian military regime (1964/1985) supported ...

    Free Fares Movement

    Leftist Movement that Started Protests in Brazil Criticizes President Rousseff

    The Brazilian leaders of the “Free Fares” movement that triggered the worst wave of ...

    Wind farm

    Sergipe in Brazil to Produce Wind Energy Enough for Town of 200,000

    Sergipe, in Brazil’s Northeast, up to 2011, should be producing enough wind energy to ...

    Araguaia guerrillas

    International Court Rules Brazil Violated Rights of Families of Guerrillas it Killed

    The Inter-American Court of Human Rights (IACHR) has ruled that between 1972 and 1974, ...

    Drought and Lack of Technology Lower Expectation of Brazil’s Harvest

    Brazil expects to produce 122.6 million tons of grain in the 2005/2006 agricultural year, ...

    There’s No Excuse for Having Nuclear Weapons, Says Brazil

    As the month-long 2005 Review Conference of the Parties to the Treaty on the ...

    Brazil Embraer's Phenom 100

    Brazil Embraer to Sell 21 Aircraft to US’s Eagle Creek

    US-based Eagle Creek Aviation Services, a full-service aircraft sales, management and maintenance provider, confirmed ...

    The Little One

    The main beneficiaries of the new minimum wage increase will be the 12 million ...

    Brazil Breaks with IMF

    Brazilian President Luiz Inácio Lula da Silva, despite a low economic growth and high ...

    Not Promise But Guarantee from Lula: All Will Be Better in Brazil, in 2006

    Brazilian President Luiz Inácio Lula da Silva "ensured" Monday that the Brazilian economy will ...