Across Asia, China remains the largest and most important fixture in the auto loan ABS market, but Japan continues to grow at a fast clip, according to a report from S&P Global.
Chinese auto ABS issuances boomed to $17.4 billion in 2017, up 81.2% over the previous year. Meanwhile, the Japanese auto loan ABS market issued approximately $8.4 billion in 2017, up 12.6% compared with the previous year.
Japan should continue to see growth in the auto loan ABS sector, S&P said. Auto loans have only been a part of the Japanese securitization market since 2000, and car sales in Japan increased by 5% in 2017 year over year.
Interestingly, in terms of borrower credit quality, China and Japan focus solely on prime borrowers. More specifically, Japan utilizes auto finance companies and consumer credit finance companies to issue auto securitizations. Japan’s 17 credit companies — excluding banks and including consumer credit companies and captive finance subsidiaries of auto manufacturers — extended about $37 billion of automobile-related credit, according to 2016 credit statistics compiled by Japan Consumer Credit Assn.
“Those consumer credit companies and captive finance subsidiaries are major originators in auto loan securitizations in Japan, raising about 20% of funds from securitizations,” the report said.
The U.S. market, however, remains a more developed environment for auto securitizations, where commercial banks and captives are the primary sources of auto loan financing options, the report said. Retail auto loan ABS issuance in the U.S. was $71 billion in 2017, up from $67 billion in 2016, with roughly 65% backed by prime receivables ($45 billion USD). Meanwhile, worldwide auto ABS issuance exceeded $89 billion USD.
Overall, auto ABS issuance globally has been strong in recent years, and better macroeconomic conditions are supporting stable collateral performance, the report said. In Japan, since the emergence of auto loan securitizations, auto loan ABS performance has only weakened slightly, even during the financial crisis.