Market updates and sector developments

Ratings drift in structured finance instruments improved in the third quarter of 2023 for the first time in more than a year, Scope Ratings has revealed. The metric measures the ratio between upgrades minus downgrades and the total number of monitored ratings over the past year.

While the agency oversaw just 12% of 294 instruments upgraded against 17% that were downgraded, the -5% ratings drift was an improvement on the -10% observed in the second quarter of the year. Scope says NPLs, auto and vehicle, and SME instruments were boosted by better-than-expected collateral performance, with the asset classes accounting for 31%, 28% and 28% of upgrades respectively. 

NPLs also accounted for the largest portion of downgrades at 59%, which the agency says is due to depressed sale prices. Unsurprisingly, CRE and CMBS instruments accounted for 24% of downgrades, which Scope attributes to refinancing risk and depressed values brought about by persistent inflation and rising interest rates.

The agency assigned new ratings to 123 instruments spanning 78 transactions in the year to September 2023. Around 46% of issue volume throughout that period was rated triple-A, with 4% rated at sub-investment grade.