[December 06, 2022]

KBRA Releases Research - 2023 European Structured Finance Sector Outlook: Stable Performance to Be Tested

KBRA UK (KBRA) releases its Sector Outlook for the European structured finance market in 2023.

The extreme inflation of 2022 will continue to impact collateral performance and issuance volumes in the European securitisation markets next year. In particular, as central banks combat high inflation with expected further interest rate hikes, a number of securitisation sectors will contend with more difficult financing conditions. In addition, the deceleration in growth across Europe, coupled with 2023's widely expected recessionary conditions, will also weigh on performance. Further, sensitivity to energy prices and energy transition objectives will be key to performance. On the positive side, the market approaches these challenges from a position of strength, with high, albeit decreasing, savings levels; low unemployment; and steadily positive growth in house prices and asset valuations over the last seven years.

Looking back to our Outlook from 2022 for the European structured finance sector, we believe the region now faces similar but growing challenges as the markets navigate a dynamic environment.

Key Takeaways

• Collateral performance is likely to deteriorate in 2023, with delinquencies expected to increase in sectors such as non-conforming loans, re-performing loans, and consumer credit.
• Unemployment levels are key drivers of transaction collateral performance. Borrowers have managed to weather higher inflation moderately well in 2H 2022, but if unemployment increases, it would have a greater impact.
• Interest rates and inflation are expected to hamper valuations of both residential and commercial properties.
• Issuance is poised to pick up over 2022 levels, which were heavily curtailed in 2H 2022, as regulations and the pullback of quantitative easing measures bring issuers to the market for funding.

Click here to view the report.

Related Publications

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• European Securitisation: Market Slows but Still Active in Q3 2022

• UK Consumer Crunch: Challenging Times Ahead

• European Structured Finance 2022 Sector Outlook: Challenges on the Horizon?
• Rising Interest Rates to Increase Hedging Extension Costs and Refinance Risk
• CMBS LTV Covenant Breach Risk on the Rise
• European CLO Manager Style Comparisons: September 2022 Update

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221206005865/en/

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