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Canadian Structured Finance 2018 Year in Review: Trends Softening as Pressures Build
Traders Magazine Online News, March 4, 2019
DBRS Limited (DBRS) released its annual industry study entitled “Canadian Structured Finance 2018 Year in Review: Strong Performance Trends Softening in 2019 as Pressures Build,” which discusses the performance of Canadian structured finance in 2018 and the outlook for 2019.
There was strong new-issuance volume in the term asset-backed security and covered bond markets in 2018, as well as strong performance across all asset classes. But will this strength continue in 2019 under a slowing economy? DBRS’s view of the current performance, emerging trends and the outlook for each asset class currently securitized is discussed in this publication.
The outlook includes:
After years of buoyant securitization activities, new issuance growth might slow down in 2019. Total new securitization volume is projected to be lower, as there are fewer scheduled maturities, and new origination overall is forecasted to slow down, being driven by limited consumer credit expansions amid the already high level of household indebtedness and potentially further interest rate hikes. On the other hand, asset performance is expected to remain stable, backed by a strong labour market with the unemployment rate remaining low. However, the performance of underlying collateral could be adversely affected by rising interest rates and current challenges in the oil industry in Alberta should they persist in 2019.
Covered bonds experienced a strong wave of issuance in 2018 and are expected to continue to grow in 2019 and in the near term. A large volume of maturing bonds, coupled with the high remaining capacity for new issuance and the bail-in regulation enacted in 2018, will likely fuel covered bond activities. Another potential favourable factor for the covered bond market is OSFI’s potentially raising the issuance cap, which is currently set at 4% of an issuer’s assets, as it would not only open up larger room for issuance but would also make the program more economical and accessible to smaller banks.
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