Fitch: Strong Korea SF Performance in 2015; Interest Rate Rise Uncertainties Remain

Fitch Ratings says that the South Korean structured finance (SF) sector demonstrated resilient performance throughout 2015.

Fitch affirmed eight tranches of Korean SF transactions in 2015 as they were all adequately credit enhanced by subordination that was sufficient to withstand 'AAAsf' rating stress.

The strong performance was due to a benign interest-rate environment (the base rate is currently at a record-low 1.5%) and strong labour market (unemployment rate was 3.1% in October 2015). The average delinquency rate for Fitch-rated credit-card SF transactions was very low at 0.1% and that for auto-loan SF transactions was 0.05%. Fitch believes that the slightly better performance by auto loans compared with credit cards was largely due to auto loans being closer to secured lending in nature. The performance differences will likely stand out more in times of stress.

Fitch believes that Korea has a strong desire to continue economic stimulus by maintaining a low base rate. However, mixed market expectations about global rate movements will put a strain on sentiments in the consumer-lending sector. In general, Korean SF will likely remain stable but may face uncertainties from interest rate rises.