Bangkok--27 Jan--KASIKORNBANK
Kasikorn Leasing is projecting 2015 car sales of below one million units, and when sales bottom out in the first half of the year, the leasing business will incrementally revive, with a greater focus put on prudent credit policy to avoid NPLs. The company has reformulated its marketing strategies to be consistent with those of its parent company, while hoping to see increased sales of new cars, pushing a whole-year loan extension of 71.80 billion, or a jump of 17 percent over-year.
Mr. Surat Leelataviwat, KLeasing Managing Director, said that outstanding loans within the commercial banking system in 2014 continued the downtrend which began in 2013, owing to the first-car buyer program which had set off future demand and a high comparison base. With unsettled economic factors and a decline in purchasing power, new auto sales have been hit hard. The used car market has seen prices tumbling, buyers have abandoned their cars and financial institutions have been coping with piling repossessed vehicles and having to manage multiplying bad debts. The domestic auto market nosedived 35 percent in 2014.
KLeasing’s total loan extension during 2014 reached 61.03 billion Baht, plunging 18.36 percent over-year. Of the total, hire purchase and financial leases registered 33.60 billion Baht, diving 14.40 percent, while the remaining 27.42 billion Baht was granted under the Auto Dealer Floorplan product, a plunge of 22.73 percent. The company’s outstanding loan was registered at 89.78 billion Baht, a fractional increase of 0.63 percent and non-performing loans at 1.16 percent. Accordingly, KLeasing posted a net profit of 499 million Baht.
This year, KLeasing’s focus remains on hire purchases, auto and fleet leasing. K-Auto Finance is still the product which is considered a key driver to growth for KLeasing’s business and had seen stellar performance of 15-percent growth during 2014. Meanwhile, the Big Bike market will continue to be another focal point for the company, other than fostering a close and long-term collaboration with original equipment manufacturers (OEM) and customers. KLeasing will also pursue its synergistic efforts, where auto leasing products are cross-marketed with financial products from KASIKORNBANK. Also lying at the heart of the company’s business blueprints, are the CLMV markets where opportunities are abundant for vehicle leasing. KLeasing plans to extend new loans of 71.80 billion Baht, a 17.6-percent over-year jump. Given this, the company should achieve 89.92 billion Baht, with no more than a 1.50-percent NPL target and a net profit of 532 million Baht for 2015.
Mr. Surat also noted that persistently-high household debt, that would inhibit car loan approval, will probably keep domestic auto sales this year under 1 million units for another year, forecasting sales of around 900,000-950,000 units, or an expansion of some 4-9 percent. While falling farm prices, especially for rice and rubber, which will likely weigh down sales in areas growing both crops, i.e., the southern and central regions, could be blamed for such a mediocre outlook, the fragile economic conditions in international markets may limit growth in our tourism and exports. And since more and more repossessed cars will be entering the market, 2015 is not going to be a pleasant year for the car business.
Despite a dismal view of the market, sales could grow with the help of numerous positive factors, including domestic economic expansion induced by public and private investment, a free trade policy under the AEC framword, which is expected to boost border trade and tourism, plus invigorated investments in special economic zones. Furthermore, declining retail oil prices and a wage rise for public and state enterprise workers should help restore consumer confidence and encourage financial institutions’ to extend more loans to certain customer segments.
As for the Big Bike market, this year will still see a satisfactory response and growth of over 10 percent. With new operators jumping in for a cut, the market can hope for vigorous business and competition, benefitting consumers who will enjoy a wider choice of motorbike models and competitive prices.
During the first quarter of 2015, the auto leasing business, similar to last year, will be under pressure from the economy undergoing a revival, which will cause financial institutions to stringently adhere to a more prudent credit policy. That should continue at least until the NPL ratio begins to steady, but before then, it is possible that outstanding loans in the commercial banking system will remain close to levels seen at the 2014 yearend.
Hire purchase businesses will bottom out within the first half of 2015 and rebound little by little, spurring incremental growth in total loans for this year, driven primarily by auto sales that should slowly rebound. Players in the vehicle leasing market will likely avoid price competition, since margins are already very tight. Given that promotional tactics involving competitive repayment periods normally affect the quality of debtors, debt problems will still be an issue that KLeasing maintain an intense scrutiny on, along with the law amendments on loan guarantees coming into effect this February that may pose extensive risks to the business sector and relevant state agencies are now trying to devise a solution to avoid such a scenario.