ABS credit to improve, despite recent fall off, rating agency says

Poorly performing loans from 2015 and 2016 are bogging down the November index of auto loan ABS credit performance, according to a report published by Kroll Bond Rating Agency.

Annualized net losses in the prime index rose 6 basis points month over month to 0.74%; the nonprime index experienced a 52 bps increase to 9.45% during the same time frame. The monthly increases are caused by seasonal factors, KBRA noted, and will likely continue to apply downward pressure on credit performance, causing it to “deteriorate,” for the remainder of the year.

Year over year, however, credit performance will improve moving forward, as 2015 and 2016 vintages, described as poorer performing loans, roll off the books. Meanwhile, better performing loans from 2018 and 2019 will increase as a percentage of both indices, prompting credit performance to improve.

Despite the worsened credit performance, delinquency rates across the spectrum improved. Nonprime delinquency-to-charge-off rates improved 90 bps, falling to 23.9% in November. Meanwhile, the percentage of prime borrowers who cured delinquency – transitioning from 60 days-plus delinquent to current – improved 50 bps compared with October, notching 21.1%.

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