November 30, 2021 (MLN): The sector outlook for APAC Emerging-Market (EM) Finance and Leasing companies is neutral for the year 2022, says Fitch Ratings in its latest report today.
This is supported by stabilizing economic conditions in India and Indonesia, and sound growth prospects for the Chinese leasing sector despite slower economic growth.
Moderate asset growth should underpin performance despite lingering credit risk in the south and south-east Asia and pressure on profitability across the region.
Fitch Ratings expects further asset-quality challenges in India in sectors more affected by Covid-19, while an economic recovery will ease the pressure in Indonesia. Chinese lessors' focus on aligning with the nation's growth strategy should help to mitigate asset risk.
Market liquidity should remain adequate as governments roll back monetary policy accommodation in a gradual manner. However, continued investor risk aversion could drive further divergence in funding access and cost. Rising competition and yield compression will continue to weigh on profitability, it added.
“Most Fitch-rated APAC finance and leasing companies' Issuer Default Ratings (IDRs) are support-driven, reflecting our expectation of extraordinary parental support,” it showed.
The rating outlooks are mostly stable, as the view of parents' credit profiles and support expectations remain unchanged.
The report also noted that independent issuers are all rated sub-investment-grade, reflecting their higher risk appetites, exposure to more vulnerable borrowers in weaker operating environments, and/or reliance on confidence-sensitive wholesale funding.
Rating outlooks for India's non-bank lenders were revised to stable from negative in 2021, reflecting moderating risks as vaccination rates rise. China Huarong Financial Leasing Co., Ltd. (BBB-) was downgraded due to the parent's downgrade and weakening ability to support and is on Rating Watch Evolving due to its potential sale.
“Our upgrade of Lionbridge Capital Co., Limited (BB-) was driven by its enhanced credit profile, benefiting from a strategic alliance with its largest shareholder,” it said.
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