Fitch Ratings announced its Rating Outlook for finance and leasing companies (FLCs) globally in 2018 is Stable. Fitch said the Stable Rating Outlook reflects modest leverage across most sub-sectors, adequate liquidity profiles, and the generally muted impact of rising interest rates in certain regions on FLCs’ earnings.

Fitch said the sector outlook is still negative based on its expectation of weakening asset quality and residual values across many asset classes, in addition to regulatory environment uncertainty.

Most FLCs are better capitalized than pre-crisis, given more conservative leverage policies. This should serve as a structural tailwind to offset tougher portfolio credit profiles. However, FLC leverage ratios in China are increasing as the Chinese market, along with some other high-growth markets, is exhibiting capital pressure.

Consumer finance sector outlooks are mostly negative as Fitch expects credit deterioration due to portfolio seasoning following recent growth, and residual value pressure. In contrast, commercial finance sector outlooks are mostly stable as there are still opportunities for outsourcing ownership of assets like aircraft, commercial fleets and trucks.

Financial technology (fintech) is likely to play an increasingly important role in financial services globally in 2018, increasing market efficiency but also introducing potential competitive disruption. However, given the nascent and evolving nature of fintech, its main impacts are likely to be beyond the 2018 outlook horizon.

Key factors impacting sub-sector outlooks are as follows:

• In aircraft leasing, the overall market for commercial aircraft benefits from strong growth of global air traffic, moderate fuel prices and largely stable airline credit fundamentals.
• In railcar leasing, weak freight car prices are likely to continue to pressure railcar residual values and lessor profitability into 2018, but declines should moderate.
• In commercial fleet leasing, portfolio growth should continue in 2018, driven in part by increased fleet management outsourcing due to the rising cost and complexity of maintaining fleet ownership.