OREANDA-NEWS. Fitch Ratings expects its rated South African structured finance transactions to perform within expectations despite increased pressure on most asset classes in 2016.

South Africa's weakening growth potential, reflecting fractious labour relations, deteriorating business conditions and electricity supply constraints, was a major factor in Fitch's decision to downgrade the sovereign to 'BBB-' from 'BBB' in December 2015. For the next two years growth will also be depressed by fiscal and monetary tightening and, at least in 2016, by drought. High unemployment and inequality raise the risk of populist policies that could undermine the business environment.

Recent credit consumer expansion may not be sustainable over the year as the economic environment deteriorates further. Fitch expects further interest rate hikes and declining real disposable income to put pressure on affordability and debt servicing. New regulation limiting maximum interest rates will only have a minor effect on affordability, particularly for mortgage debt.

Fitch expects mortgage performance to deteriorate slightly in the near term due to the weakened economic environment and constrained affordability. We also expect slower house price appreciation and increasing interest rates, but rating outlooks should remain stable as transaction deleveraging offsets stress on asset performance.

Fitch expects asset performance and rating outlooks to remain stable for ABCP, largely due reflecting the rating outlooks for sponsor banks on the national South African scale ('zaf'). ABCP issuance volumes are also expected to remain depressed but stable in 2016 .