Global structured finance ratings are generally well positioned for an expected downturn as reflected in the share of ratings with Positive Outlooks (12%) exceeding Negative Outlooks (2%), according to Fitch Ratings’ latest Global Structured Finance Market Update.
Of all SF ratings globally, 86% have Stable Outlooks. The rate of upgrades has slowed and the pace of downgrades has increased from a very low level over the past six months. This shift indicates a more negative credit environment, but we expect a limited impact on ratings given headroom in the form of structural credit protection boosted by strong asset performance and asset price appreciation in recent years, Fitch said in a statement.
“Asset performance has remained more resilient than we expected at the start of the year. However, some sectors exposed to lower credit quality borrowers are showing signs of deterioration, such as subprime auto loans and unsecured consumer loans.
The full economic impact of rate hikes on the real economy lies ahead and we expect a downturn of varying severity for most markets later in 2023 and into 2024, according to Fitch’s Global Economic Outlook – March 2023.
Inflation and rising rates remain primary credit risks, especially in those markets with a high proportion of floating-rate debt. Sustained higher rates and wider credit spreads will increase refinancing risk and weigh on asset values.