Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 12, 2020 - October 18, 2020

AUTOMOTIVE loans have been growing recently thanks to a rise in demand for cars after the government offered sales tax relief for buyers following a slump in sales during the Movement Control Order (MCO) period.

Bank Negara Malaysia’s latest banking statistics show that auto loans for passenger cars increased 2.2% year on year in August, the second consecutive month of positive growth after 13 months of contraction. Auto loans grew 0.4% y-o-y in July.

Auto loan applications in August (on a three-month moving average basis) jumped 59% y-o-y, following a 23.6% y-o-y rise in July. There was also an improvement in the average approval rate for auto loans, which rose to 54% in August, from 52% in July and a low of 44% in June.

However, it remains to be seen whether this surge in demand for cars — and consequently, auto loans — can be sustained.

For one, the blanket six-month loan repayment moratorium that banks offered to customers came to an end on Sept 30. The blanket moratorium had boosted car sales, especially in the second-hand market, as it freed up a large sum of money that consumers would otherwise have used to service their loans.

Additionally, the government’s incentives for buyers in the form of a sales tax exemption on locally assembled vehicles, and a 50% reduction in sales tax on fully imported models, which came into effect on June 15, comes to an end on Dec 31.

Hence, demand for new cars may not be as robust going forward.

According to data from the Malaysian Automotive Association (MAA), vehicle sales (both passenger and commercial) in August stood at 52,800 units, which was a 3.2% increase y-o-y but 8.3% lower than in July (57,552 units). July volumes were higher owing to the clearance of backlog orders after the announcement of the sales tax incentive in early June. It should also be noted that August was a shorter working month because of several festive holidays.

“We are hoping that September [sales] numbers will be the same as August, but we are worried that the end of the moratorium may have an impact on sales. We just have to wait and see this month to find out [the extent of] its impact. We think it will be more the used cars and low-end cars that will be affected. Nevertheless, we are hoping that the moratorium will not have an adverse impact on car sales because the sales tax exemption is still there and, also, there are ongoing promotional campaigns by car companies,” MAA president Datuk Aishah Ahmad tells The Edge. In the last few months, used car sales had increased by more than 100%, especially for models priced below RM30,000, she says.

According to Aishah, banks have also become extra careful about giving out car loans ever since the country was hit by the coronavirus pandemic. “They are even more stringent now because they are wary about whether you can repay the loan.”

Indeed, banking analysts say it is unlikely that banks will be looking to grow their hire purchase segment aggressively at the moment. With the blanket moratorium having just ended, a rise in non-performing loans can be expected, they say. As it stands, lenders are still in the midst of gauging how many of their individual customers will be unable to resume their monthly loan repayments.

Banks that had the highest proportion of automotive loans to their overall loan book as at end-2019 were Affin Bank (24%), Public Bank Bhd (15%), Malayan Banking Bhd (14%) and AmBank Bhd (14%).

Passenger car loans account for only about 9% of the banking system’s total loans.

The gross impaired loan ratio for passenger car loans is low and has been on an improving trend over the last few months. It stood at 0.37% as at August compared with 0.67% in April.

MAA projection maintained

Meanwhile, Aishah says MAA is sticking to its sales volume projection of 470,000 units this year. “I think it’s a target that can be reached,” she remarks.

The target — raised from 400,000 after the sales tax exemption was introduced — is a 22.2% decline from last year’s volume of 604,287 units and would be the lowest in at least a decade. MAA had, prior to the Covid-19 outbreak, projected a sales volume of 607,000 for the year.

Asked whether she expects a sharp improvement next year in tandem with the expected economic recovery, Aishah says sales are likely to slow down for a few months before eventually picking up. Bank Negara Malaysia has forecast that the country’s economy will grow between 5.5% and 8% in 2021 after a contraction of 3.5% to 5.5% this year.

For the first eight months of the year, total vehicle sales amounted to 285,045 units, a y-o-y decline of 41%. Volumes had slumped to a mere 143 units in April — the first full month of the MCO — before dramatically improving to 23,309 in May, 44,695 in June, 57,552 in July and 52,800 in August (see chart).

Proton Edar CEO Roslan Abdullah was recently reported to have called on the government to consider extending the sales tax exemption period by another six months, or at least until March next year, as he believes the move to be the most appropriate to drive car sales.

Perusahaan Otomobil Kedua Sdn Bhd (Perodua), the country’s largest carmaker by volume, saw car sales rebound to 7,886 in May, 21,250 in June and 23,203 in July — the latest being its best sales month so far this year.

Its president and CEO Datuk Zainal Abidin Ahmad told The Edge last month that the sales tax exemption had “really helped boost new car sales as consumers perceive this as a limited-time deal that they want to take advantage of”.

Speaking on the industry, he said sales of both new and used cars are on the rise, demonstrating that personal transport is still needed, perhaps now more than ever, and that consumers are eager to capitalise on the sales tax exemption. “From a total industry volume perspective, the figure to hit for the continued survival of the automotive ecosystem is 500,000 units, towards which we hope we can contribute significantly,” he remarked.

As for Proton Holdings Bhd, its September sales rebounded to 11,935 units, up 4.9% month on month and 12.5% y-o-y. It was its fourth consecutive month of positive y-o-y growth. Its total sales for the year now stand at 73,607 units, up 4.3% y-o-y.

 

 

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