Fitch: New Rules to Boost Indonesian Consumer-Loan Asset Quality
June 13, 2012 (Press Release) - New consumer finance rules in Indonesia that cap the maximum loan-to-value on auto loans and mortgages are likely to improve underwriting quality and slow lending growth, says Fitch Ratings. The impact will be felt mainly on non-bank finance companies, which are more active than banks in higher-risk lending.
The consumer finance regulation - set to come into force on June 15 - stipulates a minimum downpayment for motorcycles and cars of 25% for loans from financing companies and 30% for loans from banks. Some finance companies were offering motorcycle loans with zero downpayments, and this has led to an increase in delinquencies. As a result, the regulator is concerned that poor underwriting has resulted in a deterioration in asset quality at some finance companies.
The rules are unlikely to trigger a drop in bank lending because most banks have already imposed maximum LTVs of 70%-80%.
The finance industry has been growing at a compounded annual growth rate of over 30% in the last three years. We expect this to slow down, but to remain high at 20%-25%.
Financing companies account for approximately 10% of total banking system assets. However, because 70% of their lending is to consumers, they have a significant effect on that market. The finance industry is also allowed to provide mortgages to consumers, but only a handful of finance companies offer these products.
The central bank has been proactive in issuing new regulations to curb excessive deterioration in consumer-financing asset quality, and to curb inflation. In January, Bank Indonesia set new rules for credit cards, with the aim of reducing risk in that industry where default rates have been increasing.
Contact:
Iwan Wisaksana
Director
Banks
+62 21 5267 829
PT Fitch Ratings Indonesia
Prudential Tower 20th Floor
Jl. Jend. Sudirman Kav 79 Jakarta Selatan
Jakarta
Indonesia
Jeremy Carter
Managing Director
Fitch Wire
+44 20 3530 1391
E14 5GN
Media Relations: Michelle James, London, +44 20 3530 1574, michelle.james@fitchratings.com
Media Relations: Leslie Tan, Singapore, +65 6796 7234, leslie.tan@fitchratings.com
Media Relations: Brian Bertsch, New York, +1 212 908 0549, brian.bertsch@fitchratings.com
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Michelle James, London, Tel: +44 0203 530 1574, Email: Michelle.James@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.
