News Column

SCB shifts tack to used-car loans as vehicle sales slow

August 19, 2014

By Somruedi Banchongduang, Bangkok Post, Thailand

Aug. 19--Siam Commercial Bank (SCB), Thailand's third-largest lender by assets, has shifted its auto loan focus to high-yield used-car and refinancing loans in a bid to widen its margin amid sluggish sales of new vehicles.

The bank wants to raise the ratio of used-car and refinancing loans to equal new-car loans in the next few years from 40:60 at present, said Yol Phokasub, senior executive vice-president and head of the retail and business banking group.

The shift in focus should improve SCB's margin in car loans from 5.93%, but he did not provide a target margin.

With SCB's sizeable and more diversified strategy for automobile hire purchase loans, its loans outstanding are expected to reach 180-200 billion baht in the coming years, up from 178 billion now including 107 billion for new-car loans.

"Our lending growth is expected to exceed market projections, and we hope to become the top lender for used cars and automobile refinancing over the next few years. We don't want to be the market leader in new-car loans," said Mr Yol.

The bank saw a 6% year-on-year contraction in its car loan growth during the first six months of this year, hit by the lacklustre economy.

With the benign economic outlook for the second half and an assumption that full-year new-car sales will be below 1 million units, its automobile lending is expected to shrink by only 2% this year. Some 1.2 million new cars were sold last year.

SCB managed to keep its bad car loans at 2% of its automobile lending portfolio in the first half, up marginally by 20 basis points from the end of last year, thanks to prudent risk management.

Mr Yol said captive finance companies can become major players in the new-car loan market by launching very attractive campaigns to comply with their parent companies' policies of accelerating inventory release during tepid new-car sales.

Captive finance firms control 40-60% of the new-car loan market, up from 10% in the past.

New-car sales, which have been stuck in a quagmire since last year after the Pheu Thai Party's first-time car buyer tax refund scheme expired, are starting to rebound amid the economic revival.

Meanwhile, SCB targets 5% growth in retail lending this year, following a projection of 3-5% growth.

Its total outstanding loans are worth 1.73 trillion baht including 750 billion in retail loans.

SCB shares closed yesterday on the Stock Exchange of Thailand at 188 baht, up one baht, in trade worth 923 million baht.


(c)2014 the Bangkok Post (Bangkok, Thailand)

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Source: Bangkok Post (Thailand)

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