Moody's observations are detailed in a new report titled "Japanese ABS Performance Indices."
Moody's notes that the default rate for Japan's ABS asset classes is generally stable. In late 2011 and in 2012, the default rates of card cash advances and consumer finance loans touched their lowest level in 10 years.
This is mainly because credit quality has improved significantly in card cash advances and consumer loans owing to the following factors: 1) originators have tightened their lending policies in accordance with the revised Money Lending Business Law that came into effect in 2010, 2) originators have agreed to provide more favorable terms for loans and have repurchased these amended receivables from securitized pools, 3) obligors with weak credit profiles have already defaulted and left the pool, and 4) some transactions that were weak are no longer part of the index.
On the other hand, the improvement in credit quality will gradually slow. Therefore, the default rates are unlikely to decline substantially from current levels.
Credit quality is also improving in other asset classes such as auto loans and installment sales loans, as new ABS are now backed by loans that were screened more strictly. Following the revision of regulations and because of the financial problems of originators in 2007-08, originators tightened their credit policies in those asset classes.
The composition of the asset pool underlying the index has changed gradually in accordance with new ABS issuance and the withdrawal of existing ABS. This transition has therefore lowered the index's default rate, but is now nearly completed.
Moody's updates and publishes its performance indices for Japanese ABS semi-annually, and has been doing so since April 2004. Moody's provides data for five asset classes, auto loans, installment sales loans, credit card shopping, card cashing advances and consumer finance loans.
The report (available only in Japanese) can be found at www.moodys.co.jp. In addition, Moody's publishes a global collateral performance review monthly available to all registered users of our website, at www.moodys.com.
Takako Tokinaga Asst Vice President - Analyst Structured Finance Group Moody's SF Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4220 SUBSCRIBERS: (03) 5408-4210 Koji Kumamaru MD - Structured Finance Structured Finance Group JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Releasing Office: Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Copyright 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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