Monday, 17 May 2021

Moody's: Quality of Japanese buy-to-let RMBS to deteriorate on coronavirus disruptions

Moody's Japan K.K. said in a new report that the slowdown in economic and property market activity triggered by the coronavirus outbreak is increasing risks for Japanese buy-to-let loan (BTL) residential mortgage-backed securities (RMBS).

"The economic downturn caused by the coronavirus outbreak will reduce the capacity of some Japanese BTL borrowers to repay loans, leading to delinquencies and defaults in BTL RMBS portfolios," Moody's senior credit officer Shinichiro Kan said.

“Coronavirus disruptions have also subdued property market activity in Japan, which will weigh on prices for condominiums, the collateral for BTL loans,” Kan added.

BTL RMBS sponsored by financial institutions that no longer offer such loans pose a greater risk than other deals. These institutions are mainly subsidiaries of investment banks that entered the Japanese BTL loan market in the early 2000s and exited just after the 2007 to 2008 global financial crisis. They typically targeted lower quality BTL loan borrowers than more established BTL lenders.

Nevertheless, strong rental demand for condominiums mitigates these risks, with around 60% to 70% of underlying properties in Moody's-rated BTL RMBS located in the Tokyo metropolitan area.

Re-disseminated by The Asian Banker

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