Multifinance Amid Threat Of Automotive Bubble

               The multifinance industry continues to grow with the leasing sector, particularly motor vehicles, as the main force. Even automotive producers and the banking industry have recognized the expertise of multifinance companies in the automotive leasing business. Still, many in the business sector fear that easy process  on motor vehicle loan application will create “automotive bubble” and the multifinance industry will suffer from its impact. What is the prospect of multifinance business if continuously dominated by  automotive leasing ? What are the results of the 2011 Infobank 161 Multifinance  Rating?

By Karnoto Mohamad

            The impressive absorption capacity of the Indonesian motor vehicle market has made  the automotive business players beaming. Last year, car sales reached 717,258 units, a 48 percent growth from the previous year. It exceeded car sales in Malaysia in 2010, which only reached 605,156 units. Automotive exhibition, like the ongoing Indonesia International Motor Show (IIMS) which has always been packed by visitors, is a showcase of how enthusiastic the market is in responding to the influx of new cars. After booking sales of 417,687 units in the first semester, many have predicted that car sales could reach 830,000 units by year end.

Besides cars, growth in the automotive business has also been propelled by sales of motorcycles. Last year, motorcycle sales reached 7.37 million units and are projected to reach 8.3 million units this year. Such high sales of cars with price tags of  Rp150 million and above, does not automatically indicate the increasing wealth of Indonesian people. A research by Frost & Sullivan shows that Indonesians have to save their money for 104 months, or 8.6 years, in order to get a new car. Compared with Malaysians, who because of their higher salaries can have a new car in eight months. Meanwhile, those in Thailand can get a new car in 19 months and the Philippines in 21 months.

            The high sales of automotive vehicles in Indonesia is driven by poor mass  transportation services and relatively easy process of loan application from financial institutions. Multifinance companies expertise in offering express motor vehicles leasing services is widely known. The banking industry, which has cheap funds , avoids the competition and choose to cooperate with multifinance companies in the forms of loans scheme, joint financing and channeling. Even, more intimate cooperation has been implemented by top banks, by controling shares of leasing companies.

            Cooperation between banks and multifinance industry has generate a huge energy that  propel significant growth in sales of automotive products. It is reasonable because 90 percent of motor vehicles purchase are made through consumer loan schemes. However, the easy process of  automotive loan had been warned by the Central Bank (BI). According to Hartadi A Sarwono, Central Bank Deputy Governor, the potential for an automotive bubble is already seen, with very rapid demand from consumers.

            However, players in the multifinance business dismiss this anxiety. According to Wiwie Kurnia, chairman of the Indonesian Multifinance Companies Association (APPI), motor  vehicles sales growth is still normal and the Non-Performing Loan (NPL) has also decreases. “If the automotive bubble is certain, it is dangerous for all sectors, including the Indonesian economy. But bubble or not, base on what?,  the automotive sector is still okay because their growth is still normal and the NPL decreases,” he told Infobank via BlackBerry Messenger.

            According to the Infobank Research Bureau , the Non-Performing Loan (NPL) in the multifinance industry is 1,32 percent per April 2011. It is lower than the NPL at end of 2010 which was 1,37 percent or end of 2009 which was 1,91 percent. The increasing performance of the multifinance industry can also be seen from the 34.10 percent increase of their assets to Rp222.20 trillion and their leasing activities increased of 33.30 percent to Rp182.86 trillion in 2010.

            The strengthening performance is in line with efforts to discipline the multifinance industry by the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) as the regulator. In the last few years, Bapepam-LK has been firm by revoking the licenses of notorious and unserious companies. If there were 217 leasing companies in 2007, the figure was down to 192 by the end of last year.

According to Ihsanuddin, Head of the Financing Bureau of Bapepam-LK, there were 13 companies whose licenses were revoked in 2010. “Their licenses were revoked for various reasons. Some have been inactive for a long time, others were already bankrupt and cannot be tolerated anymore,” he said in closed discussion with the Editorial members of Infobank.

Other reasons were because they have shifted their business activities to other fields, such as general trading or mining. “But, most of them were revoked because the violations they had committed and the owners’ reluctance to increase their capital,” added Ihsanuddin.

Up until July this year, there were no multifinance companies licenses revoked. But, 28 companies have been sanctioned by Bapepam-LK for various cases of disobedience. A majority of them or  20 companies, were late in submitting their audited reports. Seven companies were sanctioned after an investigation, two of them were given a second Warning Letter. If these two companies fail to respond to the regulator’s demand to improve themselves, there is a great possibility that their licenses will be revoked.

Besides imposing firm sanctions, the regulator has also tightened the screening of  multifinance companies management that are competence and has integrity. Bapepam LK move to increase the evaluation quality in the fit-and-proper test in 2010 has made a lot of candidates for the posts of director and commissioner in leasing companies failed in the screening process. According to Bapepam-LK Financing Bureau data, in 2009, out of 142 candidates participating in the fit-and-proper test, nine of them didn’t passed. In 2010, from 142 participants, 10 of them had failed to pass. And within the first semester of 2011, from 110 participating in the test, only eight of them passed.

            Efforts by the regulator to discipline the industry and tighten multifinance companies  management qualification are expected to make the multifinance companies more healthy, compliant and managed by competent practitioners. According ot the Infobank Research Bureau data, of the 192 licensed companies, only 159 of them have published their publication reports. However, the number of companies which do not publish such reports have decreased.

In the 2011 Infobank 161 Multifinance Rating,  85 companies were awarded “very good”, an increase from last year’s of 75 companies. A majority of them are  top leasing companies.

Of leasing companies with assets of Rp1 trillon and above, 25 were awarded “very good”. The top 10 are: 1) BFI Finance Indonesia; 2) Adira Dinamika Multi Finance; 3) BCA Finance; 4) FIF; 5) Clipan Finance Indonesia; 6) Mandala Multifinance; 7) Multindo Auto Finance; 8) Swadharma Bhakti Sedaya Finance; 9) Buana Finance; and 10) Sunprima Nusantara Pembiayaan.

Of companies with assets of Rp100 billion up to and below Rp1 trillion, 47 were awarded “very good”. The top 10 are: 1) Batavia Prosperindo Finance; 2) Asrta Multi Finance; 3) National Finance; 4) Smart Multi Finance; 5) Beta Inti Multifinance; 6) Resona Indonesia Finance; 7) Trust Finance Indonesia; 8) Mega Auto Finance; 9) Bentara Sinergies Multifinance, and 10) CIMB Niaga Auto Finance.

Meanwhile, companies with assets below Rp 100 billion, only 13 were awarded “very good”.  The top 10 are: 1) Prataam Sedaya Finance; 2) Danareksa Finance; 3) Jaya Fuji Leasing Indonesia; 4) AEON Credit Services Indonesia; 5) Tirta Larastama Dinamika Finance; 6) Murni Upaya Raya Nilai Into Finance; 7) Otomas Multifinance; 8) Fortuna Multifinance; 9) Sumber Artha Mas Finance; and 10) Reksa Finance.

Most of the “very good“ winners  booked growth and profits above average.  Players, whose portfolio is dominant in motor vehicles, could even book a multiple growth.  Besides the high demand on vehicles, the growth of multifinance business is also driven by banks which are enthusiastic in tieing up with leasing companies to tap the automotive leasing market.

Even with signals of dangerous automotive bubble will not weaken the enthusiasm of multifinance companies and banks to tap the motor vehicles market, whose potentials are still huge. Reason is compared with to the Indonesian population of 240 million, sales volume of 800,000 units per year is still small. Take a look at Malaysia, which has only 27 million population, but car sales volume of 600,000 units per year. It is due to Indonesia’s huge population, the initial target of 1 million units of cars sold in 2014 can be achieved faster.

According to the Infobank Research Bureau, the above sales figure can be achieved on condition that there is no price hike on subsidized fuel,  inflation rate is manageable,  the Greece debt crisis does not explode and extend to other countries, and the Central Bank (BI) still imposes the BI rate below 7 percent. APPI  is optimistic that the multifinance industry will reach Rp275 trillion by end of 2011, where 75 percent or Rp206 trillion, will come from the automotive leasing sector, both car and motorcycle.

Automotive leasing has been the main source for the multifinance industry assets growth.  If we take a look at the ratio between the relatively low car ownership in Indonesia and the increasing trend of the people’s income per capita, it is quite  reasonable if the multifinance industry players are confident that the automotive bubble has yet to happen. Moreover, consumer credit for motor vehicles are relatively smooth. What needs to be our main concern instead  is the poor road infrastructures and traffic gridlocks that cause waste.

Although the multifinance industry is optimistic with its business target and confident that the automotive leasing industry is still far from reaching the ”automotive bubble”, players in the industry must remain careful and does not easily lower the downpayment in order to maintain the quality of its productive assets. Besides unpredicted external factors,  the sustainability of a leasing company depends on the attitude and the strategy of its management in running the company.

(This article has been published in Infobank Magazine - No 389 August 2011)