Fitch Ratings has reported that Structured Finance (SF) asset performance remains weaker in 2024 compared to 2023, driven by slower economic and labor market growth. Despite these challenges, arrears and defaults are expected to stay relatively low for most asset classes, supported by interest rate cuts, with strong ratings performance across the majority of SF sectors, excluding Commercial Mortgage-Backed Securities (CMBS).
In its Global Structured Finance Credit Forecast 2024 Q4 report, Fitch highlighted that CMBS delinquencies will likely rise through 2025, though at a modest pace, aided by new issuance activity and improved loan refinancing prospects. However, maturity defaults are projected to persist, particularly for office properties facing liquidity and refinancing difficulties, pushing delinquencies past post-Global Financial Crisis levels by 2025.
Globally, SF ratings have remained stable, with upgrades outpacing downgrades by nearly 3 to 1 through mid-September, primarily driven by the North American Residential Mortgage-Backed Securities (RMBS) sector. The downgrades were most prevalent in North American CMBS, particularly among properties exposed to office and retail spaces.
The report also notes that Fitch has revised its 2024 asset performance outlook for China’s Auto ABS to ‘deteriorating,’ reflecting regulatory shifts and higher loan-to-value ratios. Meanwhile, Fitch maintained a stable outlook for most other sectors, although certain asset classes face rising risks due to economic uncertainties, particularly in the U.S., Australia, and China.
As global economic conditions continue to evolve, interest rate cuts and improving credit conditions in regions like EMEA are expected to provide some relief to consumer loan performance, though arrears are expected to remain elevated through 2024.
