Bank Negara Malaysia’s New Vehicle Financing Guideline
The Bank Negara Malaysia (BNM)’s new responsible financing guideline, which was introduced in November last year, has caused a sharp drop in industry sales.
According to PROTON EDAR Dealers Association Malaysia, their sales was badly effected as the car applicants get a high rejection rate with only 30 per cent of applicants manage to secure a car loans in the first two months of the year.
This shows 70% of the car loans loan applicant lives beyond what they can afford. All individuals and households must borrow within their means to avoid financial disaster.
Consumer Association of Penang chief SM Mohamed Idris said Malaysian household debt service ratio reached 47.8 per cent in 2010. This means that on average almost half of a household’s income goes to repaying debts. Thus after paying off the debt there is not much left to spend on food, transport, education and for emergencies. Should the breadwinner fall sick or lose his job, the family will find it hard to make ends meet and loans may be defaulted.
There are also the social consequences for families: stress, depression, mental problems, suicides and family break-ups. He also further noted that, at 26 per cent, delinquent hire-purchase loans were the biggest contributor to the estimated 41 bankruptcy declarations every day in 2011. That is main reason why the guidelines are needed and must continue to be implemented.
Malaysian Automotive Association (MAA) early this week said total industry volume plunged 25 per cent year-on-year in January to 40,948 units from 54,781 units previously.
Industry players and analysts blamed the weak figures largely to tightening of the hire purchase loan approval process, which came into effect on January 1 this year.
Proton Holdings Bhd, Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and Malaysian Automotive Association (MAA) reported to seek a review, or at least a realignment, to discuss the new lending rules and policy with Bank Negara Malaysia but BNM sticks to guns on tougher car loan rules.
The main reason why this policy was introduce is to curb household debt by pegging loans to people’s disposable rather than gross income.
Therefore, it’s wise to avoid compulsive spending and spend only on what you can afford
Press Statements by BNM
Engagement with the Automotive Industry on the Implementation of the Guidelines on Responsible Financing
Bank Negara Malaysia held an engagement session with representatives from the automotive industry, represented by senior officials of Proton, Perodua, the Malaysian Automotive Association, Proton Edar Dealers Association and Perodua Dealers Association and DRB-HICOM today. The meeting provided a platform to discuss issues relating to the automotive industry arising from the implementation of the Guidelines on Responsible Financing (Guidelines) which took effect on 1 January 2012.
Bank Negara Malaysia reiterated the main intent of the Guidelines, which aim to promote prudent, responsible and transparent retail financing practices as well as to ensure that the household sector and credit market remains resilient. Bank Negara Malaysia emphasized that individuals and households must borrow within their means and that the Guidelines did not hamper access to financing by borrowers who could afford to repay their loans. Bank Negara Malaysia has written to financial institutions to ensure that consumers who have the ability and capacity to repay should continue to have access to such financing.
The meeting discussed various implementation issues which will be resolved with financial institutions, including documentation requirements for purposes of income verification. This will contribute towards more efficient procedures and processes for vehicle financing.
In the recent five years, the proportion of vehicle financing over total loans to household sector has averaged about 20%, the second highest after financing for residential properties. While there have been some reduction in the total number of vehicle financing applications received between December 2011 and January 2012, due in part to the shorter working month, the approval rate for vehicle financing has remained stable at about 54% for the month of January 2012.
Auto sector slows down
Demand upside likely to be marginal due to tight credit situation
PETALING JAYA: The near-term outlook for the Malaysian automotive sector is not exciting, according to research analysts.
OSK Research said it was still cautious on the outlook for the automotive industry, although it upgraded its call from “underweight” to “neutral” for the sector.
“We think the demand upside would be marginal as the replacement cycle for new vehicles has peaked, upcoming models may not create enough excitement to spur total industry volume (TIV) growth, bankers are more stringent in approving loans, and buyers have become more cautious,” said OSK Research.
CIMB Research said it saw few reasons to be excited due to the tighter credit environment which could hamper vehicle sales, and maintained a “neutral” call on the sector.
However the CIMB Research report maintained its TIV forecast to hit a record high of 628,022 units this year based on a belief that new vehicle sales would benefit from pent-up demand from last year’s supply shocks.
In January, the Malaysian Automotive Association had forecast TIV to hit a record high of 615,000 units this year, which is a 2.5% increase from the 600,123 units achieved in 2011.
RHB Research Institute, which maintained a “neutral” call on the sector, said there was tepid outlook for the first half of 2012.
It noted that car market participants would take some time in adapting to Bank Negara’s guidelines on responsible lending while component supplies from Thailand (which suffered flood disasters late last year) should normalise in the first quarter of 2012.
Honda Malaysia Sdn Bhd’s plant in Malacca, which had suspended operations last October, is due to resume production on March 20.
Honda Malaysia managing director and chief executive officer Yoichiro Ueno said recently that production at the the Malacca plant should recover fully by the end of April, with an output of 180 cars per day.
RHB Research also opined that new vehicle sales could stay soft in the first half of this year although there were prospects for stronger volumes in the second half.
It was also noted that the next revision of the National Automotive Policy (NAP), which is expected to be announced in April, would have long-term ramifications on the industry.
OSK Research said it did not rule out the possibility of the Government further relaxing the conditions for new vehicle manufacturing licences, especially in the 1.8-litre and above passenger car segment.
“This may pave the way for the entry of other automakers.”
Meanwhile, OSK Research said UMW Holdings Bhd was its top pick in the automotive sector due to the turnaround of its oil and gas segment on securing more oil and gas jobs as well as a foreseeable better year for its equipment and manufacturing division.
“We think UMW’s auto segment margins may improve tremendously this year, driven by a higher localisation rate (for the upcoming Toyota Camry), as well as a stronger ringgit.”
It should be noted that UMW is the largest shareholder in Perusahaan Otomobil Kedua Sdn Bhd (Perodua), with a 38% stake.
OSK Research said it expected Perodua’s volume growth to be fuelled by resilient demand, and the company to grow earnings by 14% in 2012.
Meanwhile, CIMB Research pointed out that the four automotive groups under its coverage had posted mixed financial results for the four quarter of 2011.
“The results of Proton Holdings Bhd and Tan Chong Motor Holdings Bhd came in below expectations, while DRB-Hicom Bhd was in line and UMW Holdings Bhd was above expectations.”
CIMB Research said that last year, Tan Chong Motor was dragged down by the Thai flood disasters, prolonged supply shortages for selected models and high costs associated with its domestic and regional expansion.
“Tan Chong Motor’s overall profits were also dragged down by the consolidation of Nissan Vietnam Ltd’s losses.”
According to CIMB Research, for the three months under review, UMW has performed well as after stripping off its non-core impairment losses and provisions, the group’s core net profit would have contracted by 24% quarter-on-quarter to RM163mil, which was above the research house’s projection of RM115mil.
fr:thestar.com.my/news/story.asp?file=/2012/3/13/business/10903900&sec=
Bank Negara defends rules
Lending guidelines to avoid excessive accumulation of household debt
KUALA LUMPUR: Bank Negara has defended its move to impose responsible lending guidelines among financial institutions amid continued unhappiness from some automotive players that the new loan rules are affecting their sales.
The central bank said it was doing its job to manage household debt as it was expecting debt levels to increase this year.
“We are a banker and adviser to the Government, playing an active role in advising on macroeconomic policies and managing the public debt.
“The guidelines are meant to avoid the excessive accumulation of household debt, particularly among households that are more vulnerable to income shocks,” it said in a statement, adding it did not see a need to review the guidelines.
Bank Negara also said that its job was to bring about financial system stability while fostering a sound and progressive financial sector within the country and at the same time promote a prudent conduct of monetary policy.
The central bank added that Western economies such as Australia and the United States had also duly adopted relevant measures after the experience of the US subprime financial crisis and the eurozone debt crisis.
Perodua and Proton Edar Dealers Association Malaysia (PEDA) recently indicated, from the tone of statements made to the press, that they were not too happy with the responsible lending guidelines which have come into force since the beginning of this year.
In a statement issued recently, Perodua put the blame on Bank Negara’s responsible lending guidelines after its year-on-year sales declined by 11% in March from 18,000 sold in the same month last year.
However, Perodua’s sales in the first quarter this year have stabilised, easing 2.2% to 44,700 vehicles for the first three months of this year from 45,700 vehicles registered in the first quarter of 2011.
PEDA president Armin Baniaz Pahamin said it would meet with local banks to iron out issues relating to Bank Negara’s responsible lending guidelines. fr: biz.thestar.com.my/news/story.asp?file=/2012/4/24/business/11160031&sec=business