The rising Australian interest rates are expected to result in the deterioration of Australian structured finance asset performance during 2010, Fitch Ratings said.

Australian structured finance ratings performed well overall during 2009, with rating upgrades comprising 7%, affirmations 79% and downgrades 14% of the 490 rating actions.

The majority of rating downgrades which took place in 2009 stemmed from counterparty exposure rating changes brought on by changes in the ratings of the lenders' mortgage insurance (LMI). At the end of 2009, 78% of Fitch-rated Australian structured finance debt tranches had a Stable Outlook, 21% holding a Negative Outlook, mostly reflecting the Outlook from dependent ratings on LMIs.

It is expected that the three consecutive interest rate rises, which took place in 4Q09, coupled with the prospect of further rises during 2010, will raise the number of delinquencies recorded in Fitch's quarterly Dinkum Index, which tracks the performance of arrears within Australian RMBS transactions. The rising interest rates are also expected to negatively impact CMBS and ABS asset performance during the year.

Nonconforming RMBS and CMBS are expected to come under the most rating pressure, mainly due to rising interest rates, the continuing rationing of credit by lenders, and the ongoing asset performance within certain transactions.

However, Fitch said that while asset performance will come under pressure during 2010, expectations of delinquencies and loss levels  still remain within rating parameters, which together with the structural features of the transactions, is expected to result in stable outlooks for most asset classes and transactions.

"The improvement in Australia's structured finance asset performance which was experienced during 2009 thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010 as the impact of rising rates results in increased delinquencies," said David Carroll, director in the agency's Australian structured finance team. "However, Australian structured finance ratings are expected to remain largely stable during 2010 as a result of the structural features within existing transactions." 


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