Thrift banks want changes in auto loan valuations

The country’s thrift banking system is seeking the relaxation of some regulations regarding auto loan valuations and cash services.

In a number of position papers submitted to the Bangko Sentral ng Pilipinas (BSP), banks want an 80-percent loan-to-value (LTV) ratio for auto loans and the lowering of requirements for deposit pick-up/cash delivery services.

Tomas V. Clemente Jr., president of the Chamber of Thrift Banks (CTB) said that the rationale for their requests was to make brand new cars and other services more affordable to customers as banks are relying more and more on consumer banking versus a "flatish" or sluggish corporate market.

"The reason behind the proposed 80-percent LTV is to ease the lump sum amount required on the borrower as equity," Clemente said in a number of letters to BSP Governor Alberto V. Reyes.

Presently, a bank client with a gross monthly income of P75,000 may afford a P700,000 brand new car and pay P24,000 per month. However, the borrower must raise P170,000 in equity and P25,000 for insurance for a total of P195,000.

If an 80 percent LTV is implemented, the customer need to raise just P140,000 in equity. This may not be as substantial as it appears to be but given the high price of vehicles, borrowers will welcome even a little reprieve from lump sum amounts being required from them.

"For as long as the borrower has the capacity to pay and proper credit parameters are in place, a higher LTV will not affect the loan nor past due incidents. Measures to ensure that credit guidelines are adhered to will depend on each bank’s credit and collection policies," Clemente added.

The auto loans industry has been experiencing sluggish growth for the past seven years since the 1997 crisis, or from a high of 160,000 units sold in 1996 to only 92,000 vehicles sold last year. Due to current economic conditions, auto loans availments continue to fall. To spur more lending activity particularly in auto loans, banks would like to offer lower down payment for auto loans and take advantage of a low and stable interest rate environment.

Prices of vehicles have almost doubled since 1996 with an average of 10 percent annual price increase, whereas the average income increase remained at single digit levels. The beneficiaries of this proposal are middle income household with a minimum gross monthly income of P50,000 to P75,000.

The CTB said that in terms of risk management, banks see no significant correlation between borrowers with higher equity and delinquency. Banks adhere to know-your-customer (KYC) security procedures, credit guidelines and collection strategies to ensure its portfolio is kept within acceptable levels.

It further explained that auto manufacturers and assemblers have various sales promotions to increase the affordability of their products, including the 20-percent downpayment offer.

"This has been ongoing for some time and most banks participate in the promotion. It is so prevalent and practically an industry practice, that the proposed 80-percent LTV policy will make this customer incentive legitimate," they added.

Meanwhile, the CTB also sought a relaxation of the BSP regulations found in Section X266 of the Manual of Regulations for Banks, as amended by Circular 412 affecting deposit pick-up (DPU) and cash services.

Based on the association’s letter to Reyes, it wanted the following amendments such that: a) the minimum deposit be changed to average daily balance (ADB) instead of the minimum daily average deposit, to be determined by the serving bank; b) the clients, who are provided DPU services beyond banking hours and days, will instead be reported periodically, in lieu of submitting for approval on a per account basis, to the respective supervising and examining department, and, c) the armored car that includes a driver and security guard be considered substantial compliance with the requirement of two (2) security guards. The CTB’s current statistics show that 90 percent of the member-banks‚ DPU clients will not qualify with the average deposit required, both in Metro Manila and the provinces.

Most thrift banks do not require minimum deposit amount specifically under DPU service. Instead, a specific average daily balance is utilized "driven by the total relationship of the customers with the serving bank."

Likewise, the frequency, time and number of days of DPU required by clients vary depending on the intricacies of their businesses and the industry peculiarities. The armored car compliment is a security guard and a driver who also doubles as security personnel.

Based on Circular 412, DPU and cash delivery services is limited to the following:

(1) To service the need of valued clients whose daily average deposit amounts to: P500,000 for Metro Manila and Metro Cebu; P300,000 for areas outside Metro Manila and Metro Cebu.

(2) To be serviced during regular banking hours and days only, unless the nature of the business and volume of the deposits/cash would warrant servicing beyond regular banking hours and days, in which case justification therefore should be submitted to the satisfaction of the appropriate supervising and examining department."

(3) The armored car shall be provided with two security guards "We fully appreciate the rationale behind the amended requirements: better security measures and creating more value from DPU clients based on minimum daily average deposit required. However, we also find the amended requirements unfair and discriminatory to most if not all of their existing and prospective customers," the CTB president said.