Moody's see only a small rise in delinquencies in 2019

The performance of Australian residential mortgage-backed securities (RMBS), asset backed securities (ABS) and covered bonds will remain largely strong in 2019 amid a cooling housing market, according to Moody's research.

Moody's researchers noted, RMBS delinquencies will increase moderately from low levels due to a house price correction. 

Meanwhile, the securitization of small and medium enterprise (SME) and ‘green’ loans will grow in 2019.

The researchers stated, "the quality of mortgages in new RMBS issued by banks and non-bank lenders in 2019 will be healthy overall."

"However, pressure to sustain high growth could pose a risk to non-bank credit quality over the medium-term, if it pushes these lenders into riskier segments of the mortgage market," they said.

They indicated that the performance of mortgages backing outstanding RMBS will remain strong in 2019, given continued GDP growth and low unemployment.

However, mortgage delinquencies will increase moderately from low levels, given high household debt, a cooling housing market and the conversion of a large number of interest-only loans to principal and interest loans.

Moody's beleive that the securitization of SME and green loans will be a growing feature of the Australian ABS sector in 2019.

They said, "the SME ABS sector will develop amid growing lending to small businesses by emerging technology-enabled financial institutions."

"The green securitisation sector will develop gradually, on the back of growing sales of alternative fuel vehicles and improving consistency of green mortgage standards."

The performance of outstanding ABS will remain strong overall in 2019, reflecting healthy macroeconomic conditions. However, auto ABS delinquencies will increase moderately from low levels, given the increasing proportion of consumer auto loans in the underlying pools.

Moody's noted, "the credit quality of covered bond issuers is high and this will support the credit quality of covered bonds in 2019."

"The credit quality of covered bonds has also remained robust in the face of risks in the housing market, reflecting the sound quality of cover pool mortgages," they added.