A Capital One survey conducted at ABS East 2019, a conference convening professionals from across the asset-backed securities (ABS) industry, found more than one-third (38 percent) of professionals plan to engage with new financial partners and implement new technologies, over the next 12 months, to prepare for the changing economic landscape. Additionally, 34 percent of respondents plan on reviewing or reshaping their credit and underwriting risks over the next 12 months.

“As one might expect, ABS professionals are seeking new financial partnerships, locking in favorable lending rates and assessing underwriting risks as the industry anticipates potential economic change,” said David Kucera, Senior Managing Director and Head of the Financial Institutions Group at Capital One. “As the environment continues to shift, we’ll see more middle-market businesses taking similar steps to remain competitive and continue to attract investors.”

Of the various challenges facing the industry, ABS professionals elected that regulatory uncertainty (22 percent), increased credit risk (18 percent) and increased competition (18 percent) pose the greatest challenges for their businesses over the next 12 months. Fluctuations in interest rates was listed as the greatest challenge for 15 percent of respondents.

With this fluctuation in mind, the industry was fairly split on the need to adapt their interest rates in the current environment. The survey found that almost half (47 percent) of lenders surveyed plan to lower interest rates over the next 12 months, while 53 percent plan to maintain the same rates. No respondents plan to raise interest rates, a stark contrast from last year where 60 percent said they plan to raise interest rates.

When asked about the highest growth sectors over the next 12 months, more than a quarter of respondents (27 percent) noted mortgage finance, followed by unsecured consumer lending (21 percent) and distressed lending at (19 percent). Fewer respondents anticipate leveraged credit (14 percent) and small business finance (10 percent) as sectors that will see the highest growth over the next 12 months.

Additionally, two-thirds (66 percent) of industry professionals expect buy-side interest in ABS to increase in the coming year, while 29 percent expect them to remain the same. Only 6 percent of professionals expect buy-side interest to decrease.

“Expected growth across sectors indicates the industry still sees opportunity amidst economic uncertainty,” said Eric Shea, Managing Director at Capital One. “Industry challenges could create headwinds but, for those willing to adapt, there is still significant room for growth.”

Capital One’s Financial Institutions team is dedicated to the lender finance market and works with a wide variety of non-bank financial institutions and asset managers. The team is focused on providing customized lending, advisory and financing products and solutions—including asset securitization, recourse financing and interest rate hedging.