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Wednesday March 21, 2012

Minimum downpayment on loans will impact CIMB, Maybank in Indonesia

PETALING JAYA: Malaysian banks with a significant presence in Indonesia CIMB Group and Malayan Banking Bhd are expected to be hit, to a certain extent, by a new ruling that sets a minimum downpayment on mortgage and auto loans.

“The above ruling would have an impact on CIMB Group and Maybank through their Indonesian subsidiaries PT Bank CIMB Niaga (97.9%) and Bank Internasional Indonesia or BII (97.5%).

“Among the two, CIMB has a higher profit contribution of 29% from its Indonesian operations which is likely to be more affected compared to Maybank (5%),'' said UOB KayHian in its report yesterday.

Effective June 15, the new regulation by Bank Indonesia and the Ministry of Finance states that bank customers have to place a downpayment of 30% for mortgages (excluding shoplots and houses with less than 70 sq m built-up); motorcycles (25%); private cars (30%) and commercial cars (20%). Prior to that, the rule of thumb in the industry was 20% minimum downpayment for mortgages; for automobile financing, it ranged from 10%-25%.

The lower loan to value ratio (LTV) was to reduce the possibility of a credit bubble in the property and automobile sectors, said UOB KayHian.

Mortgage loans in Indonesia have surged by 33.1% year-on-year (y-o-y) in January this year while auto loans grew by 25.1% y-o-y in the same month.

“CIMB Niaga grew its auto loans by 9% y-o-y which is not as aggressive as Indonesian banks (20%-30%). Hence, in this sense the impact is not as severe for CIMB Niaga than for the Indonesian banks,'' said an analyst.

In its regional focus, DBS group research pointed out that Bank Danamon would be most affected because of its large auto loan exposure (41% of total loans) via Adira Finance.

Total mortgage and auto loans comprise 14% of total industry loans; the average mortgage LTV is about 80% but average downpayment for auto loans is below 20%.

“Hence, auto loans will face more pressure than mortgage loans when the rules take effect, possibly a knee-jerk reaction post implementation,'' said Lim Sue Lin in her DBS report, adding that near-term fuel price hike could also derail demand trends there.

“Checks with banks also revealed average mortgage non-performing loans (NPL) ratio at below 2% in the fourth quarter of 2011, while auto NPL was below 1%,'' said Lim.

“Bank Indonesia appears to be exercising caution to avoid a bubble in the property and auto sectors; growth was close to 30% y-o-y,'' she said. “However, we see limited risk of a property bubble. Property prices in Greater Jakarta had almost never dropped while prices across the country had been rising in line with gross domestic product growth and inflation,'' she said.

HSBC, in its report, pointed out that the current message by Bank Indonesia was contrary to previous signals where it wanted banks to lower lending rates and increase credit penetration.

“We might see a spike in consumer loans before the rules become effective by mid-June, after which there should be a slowdown, assuming flawless and water-tight implementation on the part of Bank Indonesia and the banks.

“In the long term, this may not necessarily be a negative as it should help safeguard credit quality,'' said HSBC.

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