Fitch Ratings posts mixed outlook for finance and leasing companies

Fitch Ratings has predicted a mixed outlook for US finance and leasing companies in 2018, citing weakening asset quality and residual values across many asset classes, in addition to regulatory environment uncertainty.

However, the agency says most finance and leasing companies are better capitalized than before the financial crisis, given more conservative leverage policies and this should serve as a structural tailwind to offset tougher portfolio credit profiles.

US consumer finance sector outlooks are mostly negative as Fitch expects credit deterioration due to portfolio seasoning following recent growth and residual value pressure.

In contrast, commercial finance sector outlooks are mostly stable as there are still opportunities for outsourcing ownership of assets such as aircraft, commercial fleets and trucks. 

Financial technology (fintech) is likely to play an increasingly important role in financial services globally in 2018, increasing market efficiency but also introducing potential competitive disruption.

However, given the nascent and evolving nature of fintech, its main impacts are likely to be felt beyond 2018.

Fitch’s analysis suggests that in auto lending and leasing, the primary drivers of weaker credit performance are likely to be falling used vehicle prices and the seasoning of 2013-2015 auto loan vintages, which Fitch believes were characterized by weaker underwriting standards.

As regards aircraft leasing, the overall market for commercial aircraft will benefit from strong growth of global air traffic, moderate fuel prices and largely stable airline credit fundamentals.

However, in railcar leasing, weak freight car prices are likely to continue to pressure railcar residual values and lessor profitability into 2018, but declines should moderate.

In commercial fleet leasing, Fitch is predicting portfolio growth should continue in 2018, driven in part by increased fleet management outsourcing due to the rising cost and complexity of maintaining fleet ownership.