Kiatnakin Bank (KKP) has raised a red flag about rebate and top-up car loans, which create artificial demand, resulting in the bank's increasing special mention (SM) loans for used cars.
However, macroprudential measures to govern auto loans are not needed because there is no speculative behaviour in the market, unlike mortgage lending, said Aphinant Klewpatinond, chief executive at Kiatnakin Phatra Financial Group.
Higher artificial demand for auto loans is largely attributed to intensified competition among car dealers in offering cash-back and top-up loans to buyers, he said.
The practice gives borrowers a higher credit line than they need to fund car purchases, perhaps exceeding their debt repayment ability, while top-up loans are used for other purposes that lead to deteriorating asset quality, said Mr Aphinant.
"Dealers provide top-up loans for car accessories or other purposes. Gold is sometimes offered as well. Such promotional campaigns are used to purge inventory," he said.
The bank's SM ratio for used car loans surged to 10% from around 6-7% over the past several years. The double-digit rate suggests an irregularity in the business, said Mr Aphinant.
KKP has managed to keep a lid on its SM ratio for new car purchases at 6-7% of its total loans. SM loans are overdue for 30-90 days, and are at risk of becoming non-performing loans (NPLs), overdue for more than 90 days.
The bank's NPL ratio is controllable at 2.1%, he said.
To avoid the problem worsening, KKP has suspended offering top-up loans for car accessories, aiming to improve its asset quality.
The bank's auto financing amounted to 108 billion baht, representing 49% of the bank's total loans at the end of September.
The Bank of Thailand reported that commercial banks' car loans expanded 12.5% year-on-year in the third quarter, ticking up from 12.4% in the previous quarter and jumping from 8.4% in 2017, 1.4% in 2016 and 0.5% in 2015. The strong loan growth could be attributed to the end of the five-year ownership lock-up period in the first-time car buyer scheme during 2011-12.
The SM ratio for vehicle financing continued to climb to 7.32% at the end of September from 7.25% in the second quarter and 7.15% at the end of 2017. The NPL ratio for auto loans was 1.57% at the end of September, compared with 1.52% in the second quarter and 1.60% at the end of 2017.
Jamaree Ketrakool, first executive vice-president at Siam Commercial Bank (SCB), threw cold water on SM loan concerns, saying top-up loans for car accessories and cash-back deals are normal marketing campaigns. The bank has yet to spot any risky promotions given that loan approval is based on real price appraisals, she said.
SCB, the country's largest lender by assets, has managed to control its auto loan asset quality, said Ms Jamaree.
Predee Daochai, president of Kasikornbank, said his bank has not detected lending risk as a result of such marketing.
