• Categories
  • Archives

Fitch Ratings Sees Brazil’s Consumer ABS Deteriorating in 2009

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

Brazil Uses Public Bonds to Fund US$ 6 Billion Sovereign Fund

Brazil's Sovereign Fund (FSB) should be established, initially, using money from public bonds to ...

Gang Attacks Go On in Brazil for Second Night

The third wave of attacks against civilian and military targets attributed to the First ...

The Circus of Horrors Behind Brazil’s Biofuel Show

Brazil is staking its claim as a great emerging power thanks to the leadership ...

Scientists Appeal to Pope to Get GM Foods Banned in Brazil

Brazilian scientists and members of social movements have appealed to Pope Francis to join ...

US Judge Hears Investors Claiming to Be Defrauded by Petrobras

Brazil’s state-run oil company Petrobras urged a U.S. judge to throw out an investors’ ...

Brazil Is Spending Less and Finance Minister Is Quite Happy

Between January and November, Brazil’s primary surplus – the savings achieved by the government ...

Brazil Finally Complies and Hands UN Report on Kids’ Rights

Brazil’s federal government handed the United Nations Committee on the Rights of the Child its ...

Thanks to Russia and the US Brazilian Beef Exports Grow 20%

Revenues from Brazilian exports of bovine meat increased by 20% in the first eight ...

Brazil Refuses to Pay More for Paraguayan Energy Arguing Pacts Should Be Kept

Brazil has offered investments in Paraguay in exchange for not claiming a fair price ...

Alliant Energy Settles in Brazilian Arbitration

Alliant Energy Corporation, announced today the settlement of an arbitration award the company received ...