APAC FLC sector outlook neutral with divergent sub-sector prospects: Fitch Ratings

November 29, 2023 (MLN): The sector outlook for APAC emerging-market finance and leasing companies (FLCs) in 2024 is neutral, but Fitch Ratings expects greater divergence in market-specific sub-sector outlooks as differing domestic economic conditions influence FLCs’ performance prospects in the coming year.

China’s slowing economy will weigh on its leasing industry’s growth and profitability, although leading lessors’ focus on policy-related industries and limited property-sector exposure should mitigate their asset quality risks.

In contrast, India and Indonesia’s domestic economic momentum should support financing growth and asset quality, while Vietnam’s economic recovery may not fully benefit its consumer finance industry due to funding providers’ lingering risk aversion.

A slowing global economy will present varying challenges for each sub-sector.

Vietnam’s export-dependent economy will be particularly susceptible to a global demand slowdown, while India’s domestically driven market should be relatively insulated.

Indonesia’s economy will also be sensitive to any deterioration in Chinese commodity demand, with more direct implications for mining-related heavy equipment financing.

Nonetheless, we expect funding conditions to remain broadly supportive for FLCs in APAC’s major emerging markets, backed by adequate domestic liquidity.

In addition, accommodative monetary policy will partly underpin funding stability in China and Vietnam.

Expectations for shareholder support anchor Fitch’s Issuer Default Ratings (IDRs) for FLCs in China, Indonesia, and Vietnam, while IDRs on standalone Indian FLCs reflect the sector’s sustained growth opportunities amid a conducive economic backdrop.

Weaker global and Chinese GDP growth than Fitch expects, and a significant tightening in global and domestic liquidity would pose key downside risks for sector growth, asset quality, and funding and liquidity.

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