A base rate rise on part of the European Central Bank (ECB) or the Bank of England (BoE) would not have a visible impact on car finance-backed and most other asset-backed securities (ABS), Moody’s has said.
In a note, Moody’s said commercial mortgages would be the sector most affected by a rate rise, with all other asset classes coming through less affected.
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“In both the residential mortgage-backed securities (RMBS) and consumer/auto asset-backed securities market, most of the rated transactions are protected by interest rate hedging mechanisms so we only expect limited negative excess spread effect”, said vice president and senior research analyst Frank Cerveny.
Moody’s added that for the SME sector, the reeling in of quantitative easing and a rise in interest rates would have limited negative impact for securitised loans, thanks to the prevalence of fixed-rate arrangements.
It added higher financing costs for lenders “would be mitigated by stable corporate profits.”
ABS in the motor finance industry have been under scrutiny recently due to developments around diesel cars’ residual values and the European consumer economy.
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By GlobalDataIn Britain, Moody’s and DBRS warned about the effect of voluntary terminations of contracts on securities transactions.
