Finance and leasing companies should expect a “negative sector outlook” for 2017 including asset quality and residual value reversion, according to a report released yesterday by Fitch Ratings.
“Auto lenders and lessors are dealing with a shift towards a higher mix of leasing, used-car financing and nonprime borrowers at a time when used-car values appear to have peaked — all of which will likely be critical drivers of future credit performance,” said Sean Pattap, senior director of Fitch Ratings, in a press release.
Although the ratings agency cautioned that results will vary by subsector and region, overall it expects financial institutions to be affected across the board.
“The global interest rate environment for finance and leasing companies differs by region and while rising rates will ultimately add to funding costs, Fitch believes firms could benefit from higher rates through expanded margins,” Pattap added.
There are signs of stabilization as well. Fitch cited most issuers as having manageable leverage, appropriate positioning for potential interest rate increases, and a more steady regulatory environment.
Other signs of a negative outlook in 2017 presented themselves recently as the industry saw an increase in charge offs and delinquencies among auto finance companies, while used-car values decline, Auto Finance News reported based on data from 3Q earnings reports.
