Moody's: Asian Structured Finance Deals to be Stable in 2013

Moody's Investors Service says the performance of structured finance transactions in Asia will be largely stable in 2013.


A just-released report titled, "Asian Structured Finance: 2013 Outlook," details Moody's expectations for the performance of Korean asset-backed securities (ABS) and residential mortgage-backed securities (RMBS), Singapore commercial mortgage-backed securities (CMBS), Asia (ex-Japan) synthetic balance-sheet collateral loan obligations (CLOs), and Asia (ex-Japan) covered bonds in 2013.


The credit quality of receivables in new and existing Korean credit card and auto loan transactions will remain stable. Korea's economic fundamentals have improved since the 2008 global financial crisis. Moody's expects overall continuity in the current economic policies when the newly elected president, Park Geun Hye, takes office in February.


"Similarly, the credit quality of residential mortgage loans in new and existing RMBS transactions will remain unchanged and stable in 2013, as low loan-to-value ratios and an increase in the number of fixed-rate loans will offset the adverse effects from high household debt and declining property prices," says Joe Wong, a Moody's Assistant Vice President and Analyst.


For CMBS transactions in Singapore, Moody's believes that new deals will have similar features -- such as high quality properties, low loan-to-value ratios, and high debt-service coverage ratios -- that are present in existing transactions.


"On the other hand, an uncertain outlook for the global economy coupled with Singapore's slowing GDP growth will restrain the increase in property prices in 2013," says Marie Lam, a Moody's Vice President and Senior Credit Officer.


New balance sheet CLOs in Asia (ex-Japan) will also have features similar to transactions in 2011 and 2012.Country risk exposures will remain diversified in the reference pools. Also, the utilization of conservative credit-default-swap structures, such as long loss determination periods, improved loss estimation methods, and conservative replenishment criteria, will continue. The outlook for the underlying reference pools is also stable.


With regard to covered bonds in Asia (ex-Japan), Moody's notes that the framework for the market is still developing.


"There has been strong interest from market participants across the region, with some developments in legal, regulatory and market activities, as covered bonds are seen as alternative funding tools," says Jerome Cheng, a Moody's Vice President and Senior Credit Officer.


Moody's expects Singapore's regulatory authority to publish guidelines for covered bonds soon, while economies such as Malaysia, India and Hong Kong are studying the feasibility of introducing covered bonds to their markets. Each of these jurisdictions is likely to adopt a similar approach as Korea to facilitate the development of covered bonds.


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