Moody's: Conservative German approach to financed consumption will strengthen auto loan deals

The credit quality of German auto loans will remain very strong, says Moody's Investors Service in a special report published today. German consumers have not given in to excessive loan-funded spending - despite the lure of low interest rates and positive sentiment regarding the economy. 

"Higher consumer loan volumes have not been accompanied by a deterioration in credit quality. Data show that the current economic environment has not triggered excessive spending, which is not typically the case," states Armin Krapf, a Vice President -- Senior Credit Officer at Moody's. 

The new report: "German Auto Loan ABS Deals' Credit Quality Remains High, Despite the Rising Volume of New Consumer Loans", is available on www.moodys.com. 

Moody's considers that the conservative German approach towards financed consumption kept default rates low. Consumer loan default rates for borrowers between the age of 45 and 64 have been very stable since 2009, ranging between 1.8% and 2.0% from 2009 to 2014. These borrowers are more likely to be economically stable, have a more conservative view toward personal financial leverage and can afford higher loan amounts. 

Moody's analysis reveals demand for new consumer loans has shifted from smaller loans toward loans with higher principal amounts, a category that includes most auto loans. Average loan amounts increased above €10,000 for older borrowers, a borrower group with strong payment behaviour. The statistics indicate that borrowers in the 45-64 age range take out loans above €10,000 more often than younger borrowers. A high percentage of loans in German auto asset-backed securities (ABS) exceed €10,000. Schufa's data show that these large loans are more often linked to the strong borrower group, aged between 45-64. 

Even as the volume of new consumer loans in Germany is rising, the overall number of new loans is decreasing. The rating agency says this trend, along with stable auto loan and consumer loan performance in the past, will strengthen the performance of German auto loan ABS. 

The total volume of new consumer loans in Germany increased by 5.6% in 2014 to €65.3 billion, up from €61.8 billion in 2013, according to Schufa's data. At the same time, the overall number of new consumer loans declined to 7.4 million in 2014, from 7.7 million in 2013.