Morningstar DBRS Releases May 2024 Canadian Securitization Market Overview Report

DBRS Limited (Morningstar DBRS) released the Canadian Securitization Market Overview report for the month ended May 31, 2024. The report provides an overview of the total Canadian securitization market, including term asset-backed securities (ABS), commercial mortgage-backed securities, and asset-backed commercial paper (ABCP).

The total amount outstanding in the Canadian securitization market, including private placements, was $106.5 billion as at May 31, 2024. Term ABS represented 45.1% of the total securitization market, followed by ABCP at 45.2%, and private placements at 9.7%.

The Canadian securitization market (excluding private placements) continued to be dominated by credit card and auto-related transactions, which accounted for 38.4% and 22.4% of the total market, respectively. Residential mortgages accounted for 19.2%, home equity lines of credit accounted for 5.2%, and commercial mortgages accounted for 3.6%.

Term ABS and transactions funded in ABCP conduits have continued to perform well amid a challenging macroeconomic environment. The higher interest rates worked their way through the economy, removing excess demand, lowering inflation to 2.7% as of June 2024 and slowing economic growth. Signs of slowing inflation prompted the Bank of Canada to cut interest rates by a quarter percentage point for the second time in July 2024. A resilient labour market contributed to keep delinquencies and losses low throughout 2023, despite a generally upward trend in delinquencies driven by the pressure from the higher cost of living and borrowing costs on consumers' finances.

A weakening labour market, coupled with the ongoing financial pressures on consumer finances, may lead to higher delinquencies in 2024. However, high asset resale values are likely to limit losses on defaulted secured receivables, supported by ongoing supply constraints in the housing market, and the normalization of used-vehicle prices at still historically elevated levels. In general, downside risks to credit performance in securitization pools of secured and unsecured receivables will be partially mitigated by the mostly prime nature of obligors, who demonstrate a strong record of repaying their debts on a timely basis, and conservative assumptions coupled with robust levels of credit enhancement available in the transactions that can withstand a deterioration in macroeconomic activity.

The outstanding ABS and ABCP notes are well enhanced as of May 2024. Morningstar DBRS closely monitors the performance of all transactions and will continue to provide updates to the market.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The report is available at https://dbrs.morningstar.com/.

For more information on this industry, visit https://dbrs.morningstar.com/ or contact us at info-DBRS@morningstar.com.

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