There’s an as-yet tiny bright spot for eurozone economies and it bodes well for securitization.
Household indebtedness as a share of disposable income — the debt-to-income ratio — has continued to fall in Europe since 2009-2010, according to a report Wednesday by Moody’s Investors Service.
“This trend is credit positive for European consumer securitizations, as households continue to improve their debt servicing ability amid limited economic growth,” the agency said. The households that on average have improved the most are located in the Eurozone countries that have been hit hardest by the regional crisis.
Moody’s said that the average household debt-to-income ratio in the Eurozone between 2001 and 2010 shot up to 99.7% from 75.1%. The number slipped to 98.6% in 2012 — far from a dramatic turnaround, but nonetheless a credit positive for consumer and mortgage loan securitizations. This shift is particularly noteworthy because it is taking place against a backdrop of a weak overall economy, limp inflation and steep jobless rate; all of which are a “drag on households’ ability to increase their revenues,” Moody’s said.
The U.S. and the U.K. have seen much more drastic drops in household indebtedness over the last 4-5 years — about 19% and 12%, respectively — but this is largely because the figure had reached such stratospheric heights in both countries. At the end of 2012, U.S. DTI was 109%, while the U.K.’s is 133%.
Among the countries in the Eurozone with active securitization markets, it is those with the highest DTIs immediately following the crisis that have declined the most since 2007, with the exception of the Netherlands. These include Ireland, Spain, and Portugal. Moody’s currently has consumer debt securitizations domiciled in these three countries on negative outlook.
Despite the tentatively upbeat tone, the agency didn’t expect to change that outlook until the deleveraging gained significantly more traction or other macro conditions improved.
With an average DTI of 250%, the Netherlands is an anomaly because of the popularity of interest-only mortgages with tax-deductible advantages. “The risk associated with high debt levels is also mitigated by the high net worth of households, the adequate savings rate and the low unemployment rate,”
