Record-breaking year for auto loans

Low interest rates on car loans are putting brand new vehicles within easier reach of most Filipinos. Combined with an increased selection of new vehicle models in the market, the automotive industry is poised to achieve record-breaking sales in 2012.

With next year promising a similar rosy picture, the banking sector—particularly for auto loans—is all set and ready to cash in on the bonanza.

Jacqueline Fernandez, head of the consumer lending cluster and EVP of Eastwest Bank, says that the bank’s auto loan portfolio grew by more than 30 percent this year and the expectation is that the growth will hit 50 percent before the end of the year.

“Growth drivers are both supply and demand. First, car manufacturers have made units that are more affordable such as compact cars. Second, there are numerous promos offered by both dealers and car manufacturers. There is also greater competition among banks. Lastly, consumption of Filipinos increased further. Remittances are at an all-time high, which leads to their consumer confidence. Also, it is Christmas, a time when spending is expected to be high,” says Fernandez.

“For 2013, aside from existing auto manufacturers having more dealerships such as Ford, Mazda and Hyundai, there will be more players in the market such as Peugeot. While there is upbeat consumer sentiment supported by income growth, expect double digit growth in car sales as well as more aggressive programs among banks,” she adds.

Bright prospects

BPI Family Savings Bank president Jose Teodoro Limcaoco is just as confident in the bright prospects of the automotive sector as well as auto loans.

Limcaoco says that as of October this year, year-on-year loan releases were up by 11 percent despite a slow first quarter due to the tight supply situation affecting Japanese manufacturers who were hard-hit by a tsunami.

The bank president bared that the total auto loan portfolio for October was  up 10.5 percent over the same month last year, and the growth should continue until the end of the year and spill over to 2013.

“The bank’s growth continues to be driven by our superior distribution network of branches and auto-dealer relationships. Our continuing free insurance promo, which runs through the third week of December, has proven to be attractive to clients,” Limcaoco says.

“I think auto loans will continue to be strong, driven by a confident consumer base, low rates and new models being introduced by the industry. Growth might be tempered a bit since it seems some banks that were very aggressive in the second and third quarter  have become less aggressive in providing low downpayments schemes or financing dressed up units,” he adds.

No significant slowdown

But even then, there should be no significant slowdown given the robust growth of the overall economy. The Philippines’ third quarter growth rate of 7.1 percent squarely beat the performance of Indonesia’s 6.2 percent, Malaysia’s 5.2 percent, Vietnam’s 4.7 percent, Thailand’s 3 percent, and Singapore’s 0.3 percent.

And because the automotive sector is closely linked to the economy, with car sales reflecting economic growth, then there are very good reasons to believe that more good things are ahead for the automotive sector, and consequently, the auto loan sector.

As for Banco de Oro, the bank expects the takeup of auto loans this year to continue being positive, echoing the strong vehicle sales performance by car manufacturers.

That growth can be attributed to low industry interest rates brought about by close competition among players in the industry as well as the introduction of newer models, especially the smaller car variants, BDO SVP Antonio Pena says.

“For 2013, automotive manufacturers are looking at a 10-percent growth. Following suit, auto loan takeup also remains optimistic,” the banker adds.

Given expectations of brisk growth, one can only expect competition among the banks to heat up even more, which will likely mean even more affordable auto loans for consumers, Pena stated.