Automotive financing steers steady course

Automotive finance companies have grown rapidly in China during the past decade with total assets expanding more than 40 times compared with 2005, a new report said.

By the end of the first quarter of 2014, the amount of 17 automotive finance companies that have opened in China reached 281.9 billion yuan ($45 billion), up from 6 billion yuan in 2005.

During the same period, the finance companies' outstanding wholesale lending to car dealers rose to 66.8 billion yuan from 2.57 billion yuan, and their outstanding retail loans to customers rose to 194.4 billion yuan from 1.28 billion yuan, according to a report of Chinese automotive finance companies released by the AFC Professional Committee of China Banking Association in Beijing on Tuesday.

"Accelerated development of automotive finance will help promote stable growth of the real economy and push forward restructuring of the auto industry," said Yu Yarui, deputy general manager of Shanghai-based GMAC-SAIC Automotive Finance Co Ltd, who is also director of the standing committee of the AFC Professional Committee.

Most car dealers are small and medium-sized enterprises that have problems getting bank loans due to limited capital. Auto finance companies lower the threshold of lending for car dealers and help them reduce financing costs, while the domestic demand for cars slows amid increasingly stiff competition for market share.

China's central bank said in a statement on Monday that it will cut the reserve requirement ratio for automotive finance companies by half a percentage point to improve capital efficiency and expand consumption.

During the process of supporting the real economy, AFCs, among all financial institutions in China, reportedly developed good risk management. The companies can monitor the financial status and loan repayment capacity of borrowers to reduce credit risk effectively by sharing information with carmakers and dealers.

By the end of the first quarter, AFCs' outstanding non-performing loans reached 1.14 billion yuan with a NPL ratio of 0.43 percent, which was much lower than the NPL ratio of 1.04 percent for commercial banks in China.

The AFCs' loan loss provision adequacy ratio stood at 197 percent, the provision coverage ratio reached 303 percent, and the capital adequacy ratio exceeded 18 percent. The ratios were better than the average level of financial institutions, the report said.

In the past few years, the AFCs further expanded their funding channels by issuing financial bonds. Meanwhile, asset-backed securities of automobile loans have gradually normalized with the strong support of the banking regulator.

Since 2008, the AFCs have issued financial bonds three times with amount totaling 4.3 billion yuan. Up till now, many AFCs - including Mercedes-Benz Auto Finance Ltd and Ford Automotive Finance (China) Ltd - have participated in pilot projects for asset-backed securities.

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