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ABS Pros Expect Potential Credit Risk in 2018, Survey Reveals

March 22, 2018, 07:17 AM
Filed Under: Credit

An annual Capital One survey found that asset-backed security (ABS) professionals continue to anticipate major interest in buy-side asset-backed securities in 2018. The survey, conducted at SFIG Vegas 2018—a conference that assembles professionals from across the ABS industry—found that sixty-nine percent of professionals surveyed expect buy-side ABS interest to increase in 2018. When asked to name the sector in which they had the expectation for highest growth in the next 12 months, 34 percent of respondents were optimistic about growth in residential mortgage finance followed by asset-based loans/factoring (18 percent) and leveraged loans (17 percent).

“Interest in asset-backed securities continues to grow as more investors enter the market each year,” said David Kucera, Senior Managing Director and Head of the Financial Institutions Group at Capital One. “These survey results reflect the general optimistic outlook ABS professionals maintain toward market opportunities in the year ahead.”

The survey also found that concern about uncertainty around regulatory requirements was slightly down, as only half (48 percent) of respondents noted these requirements as the biggest risk to their businesses in 2018 in comparison to the 58 percent of respondents in 2017. Other top-of-mind concerns for this year include increased credit risk (23 percent) and increases in interest rates (17 percent).

With the current broad availability of capital in the market, more than half of ABS professionals surveyed (54 percent) indicated that they believe underwriting standards will continue to loosen in the year ahead. Fifty-eight percent of respondents believe credit quality will improve or remain the same.

“The industry continues to remain aware of both the credit risks posed by the current lending environment and potential changes resulting from rising interest rates and tax reform,” said Kevin Gibbons, Managing Director, Capital One. “This dynamic landscape underlines the importance of working with a trusted financial partner who is able to provide experienced counsel during periods of change.”

The survey also asked ABS professionals about the financial technologies they are exploring to increase business opportunities in 2018. Respondents cited alternative lending (31 percent) and infrastructure-based technologies like blockchain or API (30 percent) as the areas in which they see the most potential.

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