After reviewing first-quarter data connected with U.S. subprime auto loan asset-backed securities (ABS), S&P Global Ratings discovered cumulative net losses appear to have stabilized, albeit at “relatively high levels,” according to its newest report released on Tuesday.

On a segment basis, S&P Global Ratings said its subprime auto loan static index (ALSI) is showing that the 2016 vintage, with 27 months of data, is performing consistently with the 2015 vintage, as are the 2017 and first- and second-quarter 2018 vintages.

On an issuer basis, analysts noted loss deterioration abated with the 2017 vintage as the majority of the securitizers are reporting stable-to-lower losses on these securitized pools compared to those in 2016.

“These improvements appear to be correlated with the reduction in industry-wide subprime originations in 2016 and 2017 and the implementation of tighter credit standards,” analysts said in the report titled, Subprime Auto Loan ABS Tracker: Losses Have Stabilized, But Renewed Growth Bears Watching.

“However, renewed growth in subprime lending, which began in the second half of 2018, could intensify competitive conditions and lead to weaker performance,” they continued.

S&P Global Ratings shared five other key takeaways from the report, including:

• The upward ascent in subprime ALSI loss levels through 2015 and issuer-based loss deterioration through 2016 corresponded with the rapid growth in subprime financing and mounting competitive conditions from 2010 through 2015.

• Reduced subprime financing in 2016 and 2017, resulting from the implementation of tighter credit standards and operating procedures, paved the way for improved issuer-specific performance beginning with the 2017 vintage.

• Higher industry origination volume during the second half of 2018 may portend higher losses in the future.

• Credit enhancement levels have kept pace with the rise in losses, and upgrades continue to surpass downgrades by a wide margin.

• Subprime ABS issuers vary widely with their 2016 cumulative net losses ranging from a low of approximately 6% after 27 months to a high of 32%.

Analysts arrived at those assertions after determining performance in the U.S. auto loan asset-backed securities sector demonstrated seasonal trends as all prime and subprime performance metrics improved on a monthly and annual basis.

“The first quarter of the year marks the season of tax refunds, which consumers often use to pay down their loans,” S&P Global Ratings said in a separate news release.

“Since 2006, we have observed a month-over-month decrease in losses and delinquencies, and an increase in recoveries in February compared to January,” analysts continued. “February 2009 was the exception, when prime losses were 1 basis point higher than the January 2009 value of 1.92.”

“February was a strong performance month due to seasonal factors and several large issuers reporting year-over-year improved metrics,” analysts went on to say.

S&P Global Ratings reported that U.S. prime credit losses declined to 0.64% in February from 0.73% in January and 0.69% in February 2018, marking the 11th consecutive month of year-over-year improvement.

The firm indicated subprime losses decreased to 8.67% in February from 9.65% in January and 9.18% in February of last year.

Analysts pointed out recoveries improved year-over-year, rising to 55.98% from 53.91% for prime and to 41.41% from 39.21% for subprime.

S&P Global Ratings went on to mention the prime sector 60-plus-day delinquency rate decreased to 0.44% in February from 0.51% in January, and 0.46% from the year prior. The subprime 60-plus-day delinquency rate decreased to 4.98% from 5.63% in January, and 5.15% from the year prior.

“In March 2019, we lowered our expected cumulative net losses for 17 transactions, maintained them at prior levels for 10, and increased them for four,” analysts said.