Fitch: Higher Australian auto arrears in 2Q15, losses expected to rise

Fitch Ratings says it expects losses on auto portfolios to increase over coming quarters as rising unemployment and delinquencies converge by year end.

At end-June 2015, 60+days and 30+days arrears reached 0.56% and 1.34%, an increase of 7bp and 9bp, respectively, over the quarter. The annualised loss rate (ANL) remained almost unchanged at 0.60%, 2bp above 1Q15 levels. This is in contrast to what has been seen historically. During the past five years, delinquency rates in the second quarter have been similar to that of the first quarter while the net loss rate has been higher, specifically, by 8bp on average. Fitch believes that a lengthening of repossession timing is a key factor of higher arrears.

Fitch has also noticed a reduction in recoveries during 2Q15. The average recovery rate was 39.2%, down from the average of 44.9% in the past five years. However, this fall in recoveries was specific to a few well-seasoned transactions. Transactions issued in 2015 are performing with above-average recovery rates.

Fitch Ratings expects higher losses and repossessions in 3Q15, as losses have not materialised yet, and arrears are increasing. Moreover, as the agency expects unemployment to reach 6.6% by the end of 2015, we may see higher delinquency rates and losses throughout 3Q15, 4Q15 and in 2016.

Loss levels have remained significantly below Fitch's expectations, and current ratings are expected to withstand the materialisation of arrears into losses during the upcoming quarters.

Fitch-rated auto ABS issuance was modest at AUD0.9bn in 2Q15, down from the record-high of bn in 1Q15. Fitch's ABS Dinkum index includes over 910,000 loans with a total outstanding amount of AUD11.3bn, included in 29 public deals and Fitch's privately rated transactions.

The current and historical Dinkum ABS Index data is available in Excel form via the full report entitled, 'Auto ABS Index - Australia: The Dinkum Index - 2Q15', available at www.fitchratings.com