Warnings on credit quality

An annual Capital One Bank survey has found that most asset-backed securities professionals (69%) expect increased competition in 2015, while twice as many expect the auto finance market to show the greatest growth this year.

More than half (51%) of respondents said they expect underwriting standards to loosen in 2015, compared with 11% expecting standards to tighten, and 38% who say they will remain the same.

While 48% believe credit quality will remain the same in the next year, a much smaller percentage (23%) believe credit quality will improve – almost 20 percentage points lower than in last year’s survey.

In line with 2014’s survey findings, nearly three-fourths of respondents (73%) expect increased regulatory requirements and associated expenses to be the most significant risk to their businesses in 2015, far exceeding concerns about a potential rise in interest rates (21%).

“Asset-backed securities professionals expect increased competition in the coming year to have an effect on underwriting standards and overall credit quality,” said David Kucera, managing director, commercial and specialty finance at Capital One Bank. “In this market, companies can benefit from an experienced banking partner able to deliver customized financing solutions tailored to their industry and growth plans.”

Survey respondents anticipate the greatest industry growth to take place in esoterics (23%), marketplace lending (19%), residential mortgage finance (16%) and commercial loans (14%). Compared to last year’s survey, 11% now predict the biggest growth will occur in auto finance, up from 4%. In addition, 36% predict securitization issuance will be the fastest growing funding source for non-bank lending in 2015.

“Industry professionals continue to view increased regulation and related costs as a significant challenge,” said Michael Szwajkowski, executive vice president, commercial and specialty finance at Capital One Bank. “Capital One Bank is committed to helping companies navigate the opportunities and challenges across asset-backed finance in the coming year.”