Borrowers around the world entered 2019 facing unresolved trade tensions, increases in borrowing costs in some regions, volatile capital markets and with a historic stretch of economic expansion -- particularly in the U.S. -- showing signs of slowing.
Borrowers have navigated the financing squeeze relatively well so far, despite mature credit cycle dynamics, but pressures continue to build in some sectors leaving weaker borrowers at risk.
Sector credit focus
Our base case rating assumptions and an overview of the credit themes our rating analysts are watching.
North America Structured Finance:
Collateral performance is satisfactory, except for RMBS (somewhat stronger), credit cards (strong), and tobacco ABS (weak).
North America Public Finance:
Upward pressure on mandatory spending for Medicaid, pension contributions, and retiree health benefits costs is likely to outpace the states' recurring revenues – fiscal stress could emerge even if recession is averted.
North America Corporates:
We expect ratings to stay broadly stable, with credit risk focused on consumer products, retail, and health care services.
North America Insurance:
Credit stability for property and casualty insurers hinges on their commitment to produce underwriting profitability and very strong capitalization.
EMEA Public Finance:
U.K.-based social housing providers, universities, and local governments are experiencing financial headwinds that are weighing on their ratings.
EMEA Banks:
Benign asset quality, limited lending opportunities, and expectations of stable capitalization are supportive for banks’ credit prospects, despite still low profitability.
EMEA Structured Finance:
Disclosure standards under the EU's new Securitization Regulation could slow issuance.
EMEA Corporates:
Sector rating outlooks are moving in a negative direction as economic prospects dim, risk aversion grows and challenges businesses are navigating regarding trade, Brexit, and the environment.
Asia-Pacific Sovereigns:
Geopolitical tensions, increasingly protectionist trade policies and the emerging market rout, are tail risks for Asia-Pacific sovereigns.
Asia-Pacific Banks:
Nonperforming loans (NPLs) should remain low in many jurisdictions through 2019, except India where NPLs are high.
Asia-Pacific Insurance:
Greater balance-sheet volatility is a risk as intensifying competition drives insurers to pursue overseas investments more aggressively.
Asia-Pacific Corporates:
A 2019-2020 spike in debt maturities exposes some real estate developers to a liquidity crunch scenario.
Asia-Pacific Structured Finance:
A large share of interest-only loans in Australian RMBS transactions -- about 50% -- will mature in 2019 and easier underwriting standards for pre-2015 vintage loans could increase repayment risk.
Latin America Governments:
The decision by Mexico’s new government to cancel a large airport project could herald other steps that weaken investor confidence and raise uncertainty about other policies.
Latin America Banks:
The region’s largest banking sectors have seen its banks keep conservative growth strategies and a low dependence on external funding, building their resilience to growing risk aversion toward emerging market risk exposures.
Latin America Corporates:
Volatile capital flows and currency moves are sparking inflation and weak leverage metrics for firms with foreign currency debt.
Latin America Structured Finance:
Mexico’s new housing policy could see mortgage origination pick-up by government-related housing finance companies, and a return to RMBS as a funding source.