Morningstar DBRS Releases February 2025 Canadian ABS and Enhanced ABS Report

DBRS Limited (Morningstar DBRS) released the enhanced version of the Monthly Canadian ABS Report (the Enhanced ABS Report) and the asset-backed securities (ABS) market data in Excel form in conjunction with the Monthly Canadian ABS Report.

The Enhanced ABS Report offers additional metrics, longer data series, definitions, and charts that provide the user with both numeric and graphic presentations to allow for a quick review of the overall performance and trends for each transaction as well as the benchmarking of transactions within an asset class.

The reports provide an overview of the Canadian term asset-backed securities (ABS) market for the month ending February 28, 2025.

As of February 2025, the total outstanding amount in the Canadian ABS market stood at $40.7 billion, down from $41.3 billion in January 2025. Regular runoff amounted to $195.6 million.

Credit cards remain the largest asset class within the ABS market, comprising 72.3% of the market, followed by home equity lines of credit at 13.3% and auto loans and leases which comprised 8.0% of the market. The ABS market composition continues to favour consumer lending, with credit card, lines of credit and auto loan/lease programs, accounting for approximately 93.6% of the market.

Term ABS transactions have been resilient and continued to perform well amid a challenging macroeconomic environment. With 83% of total outstanding notes in the Canadian securitization market being backed by consumer-related obligations, the performance of underlying assets in securitizations continue to be primarily linked to consumers' ability to meet their monthly financial obligations, which is highly correlated with their employment situation.

The higher interest rates worked their way through the economy, removing excess demand and lowering inflation. This prompted the Bank of Canada to cut its benchmark interest rate seven times since June 2024 to 2.75% as of March 2025. Although the Bank of Canada has been loosening the monetary policy to boost economic growth, the impact from the U.S. trade war is likely to disrupt the recovery in the labour market and lead to an increase in unemployment. The unemployment rate increased to 6.7% in March 2025 from 5.8% at the end of 2023. High borrowing costs combined with a sluggish labour market have resulted in an increase in the number of consumers filing for insolvency. On the other hand, the average consumer savings rate has been high, reported at 6.1% as of Q4 2024, well above the 3.1% average seen in 2019.

Collateral performance in Canadian structured finance transactions has seen some deterioration but remains well within expectations across all asset classes. Securitization pools of unsecured receivables, such as credit cards, have experienced a rise in delinquencies and credit losses, but remain in line with historical levels pre-pandemic. Credit losses in securitization pools of secured receivables on the other hand, have continued to be limited thanks to the recovery value of the assets backing the obligations. High asset resale values are likely to continue 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 Notes are well enhanced as of February 2025. 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 dbrs.morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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