New vehicles to give boost to auto lending

New auto financing is forecast to grow by around 3-5 per cent after plunging 35 per cent last year, with a domestic auto sales recovery plus increased disposable income as a result of government spending through infrastructure projects both driving the turnaround.
However, loan growth could come under pressure if the government failed to solve the problem of low agricultural prices, as potential buyers in the sector would not have sufficient money to purchase a vehicle, according to the Thai Hire Purchase Association.
Automakers expect overall sales to resume their growth path this year, increasing around 5-10 per cent to 920,000 units, from 860,000 units in 2014.
New lending should expand in line with auto sales after plunging 35 per cent last year, said the association’s chairman, Anuchart Deeprasert.
Non-performing loans (NPLs) are not a major problem for auto finance companies, as they have been able to keep the ratio under control, while the proportion of household debt due to auto purchases has not increased, he said.
Meanwhile, Kasikorn Research Centre has forecast that outstanding auto lending will grow by about 3-5 per cent to between Bt870 billion and Bt890 billion this year, from around Bt850 billion at the close of 2014.
Last year, outstanding lending shrank by 4.5 per cent from Bt890 billion in 2013, because of the 35-per-cent drop in new auto sales, said the research house.
Several bank players in auto lendikng witnessed a significant rise in NPLs last year, driven by unpaid instalments on the part of used-car purchasers, and suffered losses from repossessed-vehicle inventory.
According to third-quarter financial results reported to the Stock Exchange of Thailand, Thanachart Bank’s instalment-plan NPLs increased to 4.66 per cent from 4.49 per cent as at the end of 2013, while Tisco Bank’s expanded to 2.35 per cent from 1.7 per cent.
Kiatnakin Bank posted a 5.6-per-cent NPL rate for the quarter, against 3.8 per cent at the end of 2013.
KResearch noted, however, that the NPL situation in the used-car segment had improved, although the ratio was increasing because of the reduction of outstanding loans.
Auto-lending NPLs in the banking system as of the end of last year had climbed to 2.5 per cent, from 2 per cent in 2013.
Rising NPLs caused the banks to set higher loan-loss provisions, and the association believes that to ease such pressure, bank auto-finance players will continue to tighten loan approvals, as well as adopting market-segmentation strategies.
Some lenders are focusing more on pickups and commercial trucks, as both types of vehicle are expected to get a big boost from the government’s infrastructure projects and the implementation of the Asean Economic Community.
For example, Kasikorn Leasing aims to concentrate more on financing fleet vehicles and auto-dealership inventories this year, because of the AEC’s anticipated enhancement of the growth of fleet-vehicle purchases.
The company foresees 2015 as another year of slow growth in loans to individual car buyers, because of high household debt.
Some banks have partnered with “captive” leasing companies – the instalment-plan arms of automakers – to offer financing via direct marketing, said Anuchart of the Thai Hire Purchase Association.
Krungsri Auto, part of Bank of Ayudhya, is one such operator partnering with a captive leasing business.
Pairote Cheunkrut, managing director of Krungsri Auto, said the company was in talks with Toyota Leasing about launching a co-marketing programme.
Krungsri Auto previously collaborated with Honda Leasing to offer a financing programme to Honda car buyers.
Anuchart said carmakers had also adjusted their production to reduce inventory, with the level of stock at each dealer this year expected to be back to the usual two-month supply, after substantial overstocking last year.
When the inventory level is lower than demand, attractive campaigns for new cars will decline from last year’s high level, when most auto-finance operators – and captive leasing firms in particular – offered campaigns such as down-payment discounts of up to Bt130,000 and zero-interest repayments for 60 months, he said.
Furthermore, lower stocks of new cars will also help spur demand for used vehicles, as some buyers are unable to wait for a new car, while the prices of second-hand cars are attractive, said the association chief.
While new loans for used cars are expected to reach Bt200 billion this year, from Bt180 billion in 2014, the figure is still well down on the Bt250 billion to Bt260 billion achieved in prior years, he said.
Meanwhile, members of the association share the view that refinancing is the key to pursuing new lending this year, because auto refinance offers a combination of low risk and high yield, while many customers prefer this type of financing, Anuchart explained.
Vorapak Tanyawong, president of Krungthai Bank, whose KTB Leasing is a wholly owned instalment-loan subsidiary, said the unit would not be aggressive in new car lending this year, as it wanted to focus on risk management.
The key drivers of auto lending at KTB Leasing are its refinancing product for individuals, to meet its high-yield goal, and auto loans to small and medium-sized enterprises and corporate customers, in order to reduce risk, he said.