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ABS Professionals Expect Declining Credit Quality, Capital One Survey Reveals

March 30, 2016, 07:28 AM
Filed Under: Industry News

Capital One’s  annual asset-backed securities (ABS) survey found that more ABS professionals expect a decline in credit quality in 2016 than last year (54 percent versus 29 percent).  Fifty percent of respondents also anticipate that issuers of ABS securities will tighten their underwriting standards in 2016, up from 11 percent in 2015. Industry professionals expect marketplace lending to see the largest growth in the coming year.

Capital One surveyed professionals from various asset classes at ABS Vegas 2016 for their views on the credit, underwriting and regulatory environment for asset-backed securities – and the assets backing them – in the next 12 months.
Despite overall economic uncertainty, nearly 80 percent of respondents expect buy-side interest will increase or remain the same in the coming year, indicating that issuers and investors continue to see ABS opportunities. Furthermore, 51 percent of respondents see competition in this asset class increasing in the next year, with only 14 percent expecting a decrease in competition. Industry professionals expect the biggest percentage growth in marketplace lending (41 percent), followed by auto finance (12 percent) and credit card debt (11 percent). Esoterics/off-the-run (11 percent) and residential mortgages (10 percent) both dropped by about half from the 2015 survey.

“We are seeing cautious optimism in the marketplace; expectations of growth are balanced with understandable concern about asset quality and a potential tightening of credit standards," said David Kucera, Managing Director, Financial Institutions Group at Capital One Bank. “Financial institutions active in this space need a partner offering a full range of financial services as well as one that understands the unique underwriting and credit dynamics of this asset class. Recent market volatility reminds us that institutions can benefit from working with banks that have experience navigating a variety of market cycles.”

ABS professionals still see increased regulatory requirements and expenses as their biggest risk (68 percent) in the coming year. Next was limited access to credit (17 percent), which jumped from 6 percent in the 2015 survey.

Capital One Bank’s Financial Institutions team is dedicated to the lender finance market and partners with non-bank financial institutions and asset managers to provide a variety of lending and financing products including asset securitization, recourse financing, and interest rate hedging. Capital One Bank’s Commercial Business leverages a relationship-based banking model that seamlessly delivers an array of products and services including loans and deposit accounts, asset securitization, treasury management services, merchant services, investment banking, international services, interest rate hedging and correspondent banking.

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