24, 2017 11:57AM /Fitch Ratings
Rating Outlook for finance and leasing companies (FLCs) globally in 2018 is
Stable, Fitch Ratings says. The Stable Rating Outlook reflects modest leverage
across most sub-sectors, adequate liquidity profiles, and the generally muted
impact of rising interest rates in certain regions on FLCs' earnings.
sector outlook is still negative based on Fitch's expectation of weakening
asset quality and residual values across many asset classes, in addition to
regulatory environment uncertainty.
FLCs are better capitalized than pre-crisis, given more conservative leverage
policies. This should serve as a structural tailwind to offset tougher
portfolio credit profiles. However, FLC leverage ratios in China are increasing
as the Chinese market, along with some other high-growth markets, is exhibiting
finance sector outlooks are mostly negative as Fitch expects credit
deterioration due to portfolio seasoning following recent growth, and residual
value pressure. In contrast, commercial finance sector outlooks are mostly
stable as there are still opportunities for outsourcing ownership of assets
like aircraft, commercial fleets and trucks.
technology (fintech) is likely to play an increasingly important role in
financial services globally in 2018, increasing market efficiency but also
introducing potential competitive disruption. However, given the nascent and
evolving nature of fintech, its main impacts are likely to be beyond the 2018
factors impacting sub-sector outlooks are as follows:
auto lending and leasing, the primary drivers of weaker credit performance are
likely to be declines in used vehicle prices and the seasoning of 2013-2015
auto loan vintages, which Fitch believes were characterized by weaker
credit card lending, Fitch believes that recent loan growth for several large
issuers in the high single digits, and in some cases low double digits, is
unsustainable longer-term and will likely result in further pressure on credit
losses if this pace continues for an extended period.
the U.S. student lending market, Fitch expects loan growth to moderate in 2018
due to slower enrollment growth and a flattening of tuition fee increases.
the consumer unsecured sub-sector, marketplace lenders appear to be in a
transition phase with several of the largest lenders shrinking volumes and some
smaller players either shutting down operations or being sold.
mortgage servicing, Fitch expects consolidation of smaller nonbank mortgage
servicers in the medium term. Servicing costs continue to rise and companies
are seeking to rationalize costs and improve margins through maximizing
economies of scale.
aircraft leasing, the overall market for commercial aircraft benefits from
strong growth of global air traffic, moderate fuel prices and largely stable
airline credit fundamentals.
railcar leasing, weak freight car prices are likely to continue to pressure
railcar residual values and lessor profitability into 2018, but declines should
commercial fleet leasing, portfolio growth should continue in 2018, driven in
part by increased fleet management outsourcing due to the rising cost and
complexity of maintaining fleet ownership.