The latest report from Fitch Ratings indicated U.S. auto loan and lease credit performance will likely continue to deteriorate in the second half of 2016 and into 2017.

Analysts noted year-over-year credit performance deteriorated for auto finance companies in the first half of 2016, despite improved loss rates in the first half of this year relative to the second half of last year, which Fitch attributed primarily to seasonality.

“Fitch expects credit performance to continue to deteriorate going into 2017, particularly in the subprime segment as less tenured auto finance companies with looser underwriting standards have entered the market in recent years,” Fitch Ratings director Michael Taiano said.

Strong vehicle installment contract as well as lease portfolio growth for Fitch-rated auto finance companies continued in the first half of this year due to strong vehicle sales, low interest rates and continued consumer demand for leases and extended loan terms. Although analysts acknowledged the growth rate decelerated slightly from last year.

Fitch is expecting financing growth to continue to moderate, particularly should interest rates rise and used-vehicle values decline, which could impact lease pricing.

Despite the recent credit deterioration, Fitch-rated auto lenders' ABS credit performance continues to be strong relative to historical norms as the average net loss rate increased a modest 8 basis points to 0.73 percent in the second quarter of this year from 0.65 percent in the year-ago period.

The firm pointed out average 30-day delinquencies actually decreased slightly to 3.16 percent from 3.25 percent during the same period.

“Losses among the largest auto lenders remained low, but continue to normalize due to an increase in both loss frequency and severity,” Fitch said. “The average net charge-off rate on the managed portfolios for lenders cited in the report increased to 0.53 percent from 0.43 percent year-over-year.”

Fitch went on to mention that Huntington Bank, Chase and American Honda Finance ended the first half of the year with the lowest credit loss rates largely due to the prime nature of their portfolios and consistent underwriting standards.

“Credit losses and delinquencies for the auto finance industry will likely trend higher as more recent vintages continue to season and recovery values decline from historic highs,” Taiano said.