Tougher approvals seen for car loans


BUYERS will find it harder to get car loan approval as banks are becoming more cautious in light of rising unemployment and uncertain economic conditions.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said lenders are taking more things into consideration in assessing financing applications, which means longer approval times.

“The banks are looking at many angles, such as whether the applicant is working from home or is the industry thriving, because they are concerned about the person’s ability to pay. Previously, the assessment normally takes three to five days, but now it could be a week or longer,” Aishah told The Malaysian Reserve (TMR).

She said it is now difficult to obtain a nine-year car loan and normally customers secure a seven-year loan or maximum 90% financing, depending on their creditworthiness.

Besides becoming more stringent, she said banks have reduced hire purchase loan quantum, particularly for used vehicles, and it varies based on brands.

“Weaker brands tend to get less quantum,” Aishah said.

An industry player who asked for anonymity said employees from sectors such as oil and gas, tourism and airlines have higher rejection rates.

“The approval rate has reduced between 30% and 50% due to an increase in unemployment, salary cuts and potential non-performing loans,” the source told TMR.

An analyst told TMR loan approvals for cheaper cars are more affected than those at the higher end.

“Carmakers said banks have increased the salary threshold for applicants before approving loans,” said the analyst, who requested not to be named.

The analyst said many carmakers now rely more on their own financing programmes to provide better flexibility for customers.

Last Monday, the Department of Statistics Malaysia reported that the unemployment rate rose to 5% in April 2020, the highest since 1990, with the number of jobless persons jumping 48.8% year-on-year (YoY) to 778,800.

The agency noted the working population decreased by 156,400 persons, or 1% YoY, to 14.93 million persons in April.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the closure of operations for most businesses during the early phase of the Movement Control Order (MCO) caused losses of employment and job seekers could hardly find jobs.

Mohd Uzir said those most affected were in the manufacturing and services sectors, namely accommodation and food and beverage; arts, entertainment and recreation; and other services such as beauty centres and salons.

AmBank Group Research said Malaysia’s unemployment rate could hit 6% or higher this year, worse than during the 1997 Asian financial crisis and 2008 Great Recession when unemployment rose to 3.2% and 3.7% respectively.

Automakers are cautiously optimistic for vehicle sales to rebound on sales tax exemption, given tough economic conditions that are affecting the people and tighter loan approvals.

MAA’s Aishah said the recently announced sales tax waiver has boosted consumer sentiments toward buying cars, but the question remains at this point on how far that would translate into more purchase.

“The sales tax exemption definitely improves consumer confidence to buy a new car with attractive discounts offered, but we still have to wait and see whether the orders come in and get converted into new registrations.”

She said carmakers have seen greater interests from consumers, but it is a little too soon to tell how much the positive development would be.

The government in early June granted sales tax exemptions of 100% for locally-assembled vehicles and 50% for imported units for six months until December to revitalise the automotive market after it grounded to a halt during the MCO.

Thus, carmakers have announced cheaper prices, averaging at 5% discount, according to brands and models.

Aishah viewed the premium segment as less impacted than lower-range brands in the current challenging market as customers in the high-end bracket are relatively less affected compared to the masses.

Affin Hwang Investment Bank Bhd analyst Brian Yeoh said in a strategy note recently that demand for cars will unlikely accelerate in the second half of the year (2H20) due to macroeconomic challenges and subdued consumer sentiments.

“We expect total industry volume to gradually improve in 2H20 as the cheaper car prices during the Sales and Service Tax exemption period (June 15 to Dec 31, 2020) may tempt new car buyers. However, we think that the challenging macro outlook and the weaker MIER (Malaysian Institute of Economic Research) first quarter of 2020 consumer index (51.1 points at a 32-year low) will see Malaysians deferring purchases of big-ticket items.”

Yeoh said the research house still expects total industry volume to decline 20% in 2020 to 485,000 units and anticipates weaker auto margins amid a weak ringgit (versus US dollar/Japanese yen) outlook and higher operating costs.

MAA in a statement last month reported that vehicle sales plunged almost 100% YoY in April to only 141 units — 131 passenger vehicles and 10 commercial vehicles — compared to 49,935 units recorded in the same month last year.

It forecast sales volume in May would be much higher than April, but very much lower than traditional monthly registrations before the MCO.