Indonesia Automobile and
Motorcycle Finance Industry
STRATEGIC RESEARCH DIVISION (SINGAPORE)
July 2016
Indonesia Automobile and Motorcycle Finance Industry I July 2016
A member of MUFG, a global financial group
Table of Contents
1. Current Situation of the Financing Market
・・・2
(1) Market Trends (page 3)
(2) Background (page 4)
2. Industry Structure
・・・5
(1) Major Players (page 6)
(2) Business Development and Customer Segmentation (page 7 ～)
(3) Characteristics of Business Activities (page 9)
(4) Financial Performance of Major Companies (page 10 ～)
3. Future Outlook
(1) The Financing Market Outlook (page 14)
(2) Competitive Outlook (page 15)
(3) Regulatory Outlook (page 16 ～)
(4) Future Challenges (page 18)
1
Indonesia Automobile and Motorcycle Finance Industry I July 2016
・・・13
1. Current Situation of the Financing Market
2
Indonesia Automobile and Motorcycle Finance Industry I July 2016
1. Current Situation of the Financing Market
(1) Market Trends
~ The automobile and motorcycle financing market in Indonesia has been expanding
The Indonesian automobile
and motorcycle financing
has been growing in recent
years.
Loan balance has grown at a
CAGR of 14.2% in the last 5
years, from IDR 104 trillion in
2010 to IDR 201 trillion in
2015. However, the rate of
growth has been slowing as
vehicle sales have declined.
Automobile and Motorcycle Loan Balance
(IDR trillion)
250
30%
2010-2015
2008-2013
CAGR：13.7%
CAGR：14.2%
201
200
183
170
21.0%
20.3%
150
104
142
25%
20%
20.0%
125
100
15%
13.0%
50
9.7% 10%
8.0%
0
5%
2010
2011
2012
Loan Balance(LHS)
(Source) Euromonitor, compiled by BTMU SRD Singapore
3
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2013
2014
YoY (RHS)
2015
1. Current Situation of the Financing Market
(2) Background
~ Economy-driven demand for automobiles and motorcycles has boosted the financing market
Automobile and motorcycle
sales have boosted the
financing market, but the
slowdown in sales has
affected the industry.
Indonesia Automobile and Motorcycle Sales
<Motorcycles>
<Automobiles>
(1,000 units)
1,400
60%
1,200
Automobile sales in Indonesia
have grown at a CAGR of 13.7%
over the last 10 years. However,
automobile sales have been
declining since 2014 due to
higher fuel prices and high
interest rates, with sales in 2015
declining by -16.1% YoY.
Although motorcycle sales have
grown at CAGR of 4.3% in the
last 10 years, sales in 2015
declined by -17.6% YoY.
1,000
40%
13.7%
About 70% of car buyers and
80% of motorcycle buyers use
financing services.
20%
4.3%
800
0%
6,000
0%
600
-20%
4,000
-20%
400
-40%
200
-60%
2,000
-40%
0
-80%
06
07
08
09
10
Automobile Sales (LHS)
CAGR (10 years)
11
12
13
14
YoY (RHS)
0
-60%
06
15
07
08
09
10
Motorcycle Sales(LHS)
CAGR (10 years)
11
12
13
14
15
YoY(RHS)
(Source) CEIC, compiled by BTMU SRD Singapore
Population Ratio by Income Bracket
（Million）
100%
250
200
80%
150
60%
100
56.2
68.1
78.6
83.5
0
11.0%
26.1%
52.1%
57.6%
40%
20%
50
0%
1990
60 or Over
2000
2010
2014
40s, 50s
20s, 30s
Under 20
(Source) Euromonitor, compiled by BTMU SRD Singapore
4
40%
8,000
20%
Population Growth by Age Group
Indonesia has maintained a
GDP growth rate of 5-6% in
recent years. Most new buyers
are young people in their 20s
and 30s as well as the
increasing ranks of middle
income earners.
(1,000 units)
10,000
Indonesia Automobile and Motorcycle Finance Industry I July 2016
1990
Affluent
2000
2010
2015
Middle Class Low Income
(Source) Euromonitor, compiled by BTMU SRD Singapore
2. Industry Structure
5
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2. Industry Structure
(1) Major Players
~ The market comprises a large number of commercial banks and non-bank financial institutions
Adira Dinamika Multi Finance,
Mandiri Tunas Finance, BCA
Finance etc. are affiliated with
commercial banks.
Most captive finance companies
are affiliated with Japanese
automakers, such as Toyota
Astra Financial Services
(Toyota), Dipo Star Finance
(Mitsubishi Motors), Bussan
Auto Finance (Yamaha).
Astra Sedaya Finance, Federal
International Finance etc. are
non-captive finance companies
affiliated with local major
conglomerates.
6
<Commercial Banks>
Company
Loan
Brand1
Total Assets
2
Automobile
(IDR 1 billion)
Mitsubishi
the end of
Toyota Daihatsu Honda Suzuki
Nissan
Motors
2015
(31.8) (16.6) (15.7) (12.0) (11.1)
(5.4)
2
Motorcycle
Others
Honda
Yamaha
Suzuki
Others
(7.4)
(68.7)
(27.8)
(1.7)
(1.8)
Adira Dinamika Multi Finance
Automobile/
Motorcycle
27,744
○
○
○
○
○
○
○
○
○
○
-
Mandiri Tunas Finance
Automobile
9,203
○
○
○
○
○
○
○
-
-
-
-
BCA Finance
Automobile
6,824
○
○
○
○
○
○
○
-
-
-
-
Clipan Finance Indonesia
Automobile
6,647
○
○
○
○
○
○
○
-
-
-
-
Wahana Ottomitra Multiartha
Motorcycle
5,306
-
-
-
-
-
-
-
○
○
○
-
Buana Finance
Automobile
3,163
○
○
○
○
○
○
○
-
-
-
-
CIMB Niaga Auto Finance
Automobile/
Motorcycle
N/A
○
○
○
○
○
○
○
○
○
○
○
<Non-Bank Financial Institutions>
1
Company
Ownership
Loan
Brand
Total Assets
2
Automobile
(IDR 1 billion)
Mitsubishi
the end of
Toyota Daihatsu Honda Suzuki
Nissan
Motors
2015
(31.8) (16.6) (15.7) (12.0) (11.1)
(5.4)
Motorcycle
2
Others
Honda
Yamaha
Suzuki
Others
(7.4)
(68.7)
(27.8)
(1.7)
(1.8)
Toyota
Automobile
17,804
○
-
-
-
-
-
-
-
-
-
-
Mitsubishi Motors
Automobile
N/A
○
○
○
○
○
○
○
-
-
-
-
Yamaha
Motorcycle
N/A
-
-
-
-
-
-
-
-
○
-
-
Suzuki
Automobile /
Motorcycle
N/A
-
-
-
○
-
-
-
-
-
○
-
Astra Sedaya Finance
Conglomerate
Automobile
30,392
○
○
-
-
-
-
○
-
-
-
-
Federal International Finance
Conglomerate
Motorcycle
28,734
-
-
-
-
-
-
-
○
-
-
-
Independent
Automobile
11,770
○
○
○
○
○
○
○
-
-
-
○
Toyota Astra Financial Services
Captive
Financing companies can be
largely classified into
commercial banks (and
affiliated companies) and
non-bank financial
institutions, which can be
further divided into captive
and independent non-captive
finance companies.
Major Players
Dipo Star Finance
Bussan Auto Finance
Suzuki Finance Indonesia
BFI Finance Indonesia
Non-captive
There are over 200 finance
companies in Indonesia, of
which over 100 provide
automobile and motorcycle
finance services.
Mandala Multifinance
Indomobil Finance Indonesia
Mitra Pinasthika Mustika Finance
Summit Oto Finance
Oto Multiartha
Mitsui Leasing Capital Indonesia
Independent
Motorcycle
4,595
-
-
-
-
-
-
-
○
○
○
Conglomerate
Automobile /
Motorcycle
4,468
-
-
-
○
-
○
○
-
-
○
-
Independent
Automobile /
Motorcycle
○
○
○
○
○
○
○
○
○
○
○
Japanese trading
company
Japanese trading
company
Japanese trading
company
Motorcycle
N/A
-
-
-
-
-
-
-
○
○
○
○
Automobile
N/A
○
○
○
○
○
○
○
-
-
-
-
Automobile
N/A
○
○
○
○
○
○
○
-
-
-
-
N/A
(Note 1) ○ indicates that the company provides loans for that brand, while － indicates otherwise.
(Note 2) The figures in parentheses below the brand represent the market share (%) of that brand in 2015.
(Source) Bloomberg, various websites, compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2. Industry Structure
(2) Business Development and Customer Segmentation (1/2)
~ Commercial banks and captive finance companies mainly target more creditworthy customers
Customer Segmentation in Vehicle Finance Industry
Captive finance companies
mainly target customers who are
relatively more creditworthy
through affiliated dealers. They
also acquire less creditworthy
customers as a result of
launching promotional
campaigns regularly.
Non-captive finance companies
cannot compete with
commercial banks in terms of
fund-raising ability and they
have weaker connections with
dealers as compared to captive
finance companies. Thus, they
target mainly less creditworthy
customers such as low income
earners in urban areas and
consumers in rural areas.
7
USD 15,000
Lower Middle Class
(Automobile and Motorcycle)
USD 5,000
Low
Low income
(Motorcycle)
(Source) Various articles, interviews, compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
Non-captive
Upper Middle Class
Middle Class
(Automobile)
Automobile
Captive
USD 35,000
High
Non-captive
Affluent
Household Annual
Disposable Income (Automobile)
Captive
Commercial banks launch
products with competitive loan
interest rates and terms and run
advertising campaigns
aggressively to target the
affluent class (many of which
are automobile buyers), who are
more sensitive to the lending
terms.
Bank-affiliated
The customer groups of the
financing companies can be
classified as follows:
Motorcycle
2. Industry Structure
(2) Business Development and Customer Segmentation (2/2)
~ Commercial banks and non-bank financial institutions continue to enter the market
Recent Developments in Financing Company Activities
New Entrant
Company
Expansion of Existing
Business
However, although the
growth of automobile and
motorcycle loans has been
sluggish recently, new
players continue to enter the
financing industry, thus
resulting in intense
competition among the
players.
Subsidiary
Description
Established a new local company and entered the automobile
financing market. Started to provide automobile loans which specialize
in Nissan brand.
Acquired 40% share of an automobile financing company (Mitra
Pinasthika Mustika Finance) and entered the automobile financing
market.
Nissan
(automaker)
Nissan Financial Services
Indonesia
JACCS
(non-bank)
Mitra Pinasthika Mustika
Finance
Tunas Ridean
(local auto dealer)
Bank Mandiri
(local bank)
Mandiri Utama Finance
Established a joint venture between Tunas Ridean and Bank Mandiri
to enter the automobile financing market.
Oct 2014
Sumitomo Corporation
(trading company)
Hino
(automaker)
Hino Finance Indonesia
Established a new captive finance company mainly offering finance
services for Hino trucks and buses with the aim of strengthening
customer relations.
Dec 2014
J-Trust
(non-bank)
Group Lease
(non-bank)
Group Lease Finance
Indonesia
Established a joint venture company providing automobile, motorcycle
and other consumer financing services.
Jan 2016
JA Mitsui Leasing
(non-bank)
Mitsui Leasing Capital
Indonesia
Expanded its sales networks (up to 3 branches/year) especially in rural
areas.
Jun 2013
Bank Central Asia
(local bank)
Central Santosa Finance
Acquired stock of a motorcycle financing company (Central Santosa
Finance) and expanded its existing business.
Jan 2014
Trakido Utama Group
Chandra Sakti Utama
Leasing
Expanded business from heavy equipment financing to include
automobile financing due to weakness in the mining industry.
Mar 2015
(Source) Company homepages, newspaper articles, etc., compiled by BTMU SRD Singapore
8
Date
Indonesia Automobile and Motorcycle Finance Industry I July 2016
Nov 2013
Feb 2014
2. Industry Structure
(3) Characteristics of Business Activities
~ Provision of incentives to dealers and labour-intensive methods of credit screening/loan collection
Financing companies mostly
acquire their customers
through dealers, and so need
to provide incentives to them.
Business Operations and Characteristics of Financing Companies
Automobile
Customer Acquisition
M arketing
Occupation
Incentive to Dealers
S creening
Application Terms
Screening
Ordinary salaried employees
Yes
Yes
No
Privileges System
Various incentives such as overseas travel
No
Required Documents
Salary statement, ID, Utility payment slip, etc.
Copy of driver's license
Credit Information Data
No
Yes (CIC: Credit Information Center)
Home Visit and
Verification
Home visit, verification of required documents,
interviewing neighbors
No
Insurance
Vehicle Insurance
Interest Rate
Several hours to 2 days after receiving
1 to 3 days after receiving documents
documents
Vehicle inspection certificate, letter of proxy authorizing vehicle impoundment
(to be kept by financing company)
To be obtained via a financing company.
Around 10-15%
Around 30%
Voluntary vehicle insurance
3-8%
No
Payment Period
Average of 3-4 years with equal monthly repayment
3-5 years with monthly repayment
Loan Delinquency
Management
Reminder before Due
Date
Call Center
Basis for Repossession of
Collateral
Vehicle Impoundment
Indonesia Automobile and Motorcycle Finance Industry I July 2016
Vehicle inspection certificate
to be kept by applicants.
Bank: more than 30%, Financing Company: more than 25%
Bank transfer, cash, post-dated check
Mainly cash
Automatic money transfer
Via telephone or SMS by person-in-charge
Via telephone or SMS by person-in-charge, urging debtors
to repay loans through home visit
Via telephone, written notice
Reminder via telephone or SMS before due Via telephone or SMS by person-in-charge,
date
reminder through home visit
Almost none
(contact customers after due date)
Used aggressively
Used together with home visiting
Intensive reminder from a call center
30-50 days overdue
30 days overdue
60-90 days overdue
Vehicles that are difficult for the financing company to impound are outsourced to
contractors
If financing companies have to
Around 60-70% of their initial value
Around 30-40% of their initial value
Sellout
Used Car Price
seize/sell collateral after an
after 3 years
after 1 year
overdue loan, both automobile
Fundraising
Mainly bank borrowings (some major players issue corporate bonds)
Method
and motorcycle financing
(Source) Various articles, interviews, compiled by BTMU SRD Singapore
companies normally outsource
the work to external
contractors.
9
Several hours after receiving documents
Down Payment
Payment Method
Seizure
No
Individuals, middle management or above in Office workers, those working in the service
the company
industry, farmers, etc.
Provision of incentives to individual sales staff
Collateral Document
Reminder
Dealers
Urban areas: 60% Rural areas: 40%
Interest Kickback
Collateral Terms
Credit Execution
Overwhelming majority in urban areas
Automobile / Motorcycle
Rewards to Sales Staff
Screening Period
C ollateral/Credit
E xecution
The financing companies
usually call to remind
automobile debtors to repay
their loans via bank transfer
from a call center. In contrast,
motorcycle loan debtors are
more likely to make cash
payments and are often late in
repaying their loans by up to a
week, so labour-intensive
methods such as home visits
are used to remind and collect
payment.
Customer Profile
Japan (Reference)
Motorcycle
Dealers
Channel
Regional Characteristics
Collection
Credit screening is labourintensive as there is no useful
credit information agency in
Indonesia (e.g. buyer
workplace/home visits,
interviews with neighbours).
Indonesia
Type of Business Operation
Collected by collection division
Around 50-60% of their initial value
after 2 years
Mainly bank borrowings
2. Industry Structure
(4) Financial Performance of Major Companies (1/3)
~ Stable earnings , but operating expenses eat into net margins
Major financing companies in
Indonesia are starting to
experience slower revenue
growth. At the same time, net
income ratios have come
down amidst higher operating
expenses due to increased
financing and credit costs.
However, finance companies
are helped by the fact that
(1) they have a high lending
profit margin and
(2) they control credit costs by
maintaining a high loan
collection rate.
The funding rate is about 5%
for automobile financing
companies and 10-20% for
motorcycle financing
companies, while the lending
rate for automobile financing
companies is over 10% and
around 30% for motorcycle
financing companies.
10
Earnings of Major Financing Companies
（IDR Trillion）
60
30%
50
25%
40
20%
30
15%
20
10%
10
5%
0
0%
2009
2010
2011
Revenue
2012
2013
2014
2015
Net Income Ratio
(Note) 12 major financing companies’ financials used: Astra Sedaya Finance, Adira Dinamika Multi Finance, Federal
International Finance, Toyota Astra Financial Services, BFI Finance, Clipan Finance Indonesia, BCA Finance, Mandiri
Tunas Finance, Mandala Multifinance, Wahana Ottomitra Multiartha, Buana Finance.
(Source) Various websites, newspaper articles, etc., compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2. Industry Structure
(4) Financial Performance of Major Companies (2/3)
~ Maintaining high loan repayments rates while keep credit costs low
The non-performing loan ratio
for automobiles and
motorcycles is about 1.0%1.5%.
This denotes the percentage of
bad loans (that are more than
90 days overdue) to total gross
loans. In Indonesia, vehicles as
collateral are normally
impounded and sold when
loans are past due by 30-50
days. Thus, the amount of bad
loans tends to be equal to the
amount of uncollected
receivables after selling
collateral.
This is because
(1) prices of used cars decline
more slowly than the rate of
loan repayment and
(2) bad debt losses after
disposing of collateral are low.
Non-Performing Loan Rates for Personal Loans
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1/12
7/12
1/13
7/13
Housing Loan
1/14
7/14
1/15
Automobile/Motorcycle loan
7/15
1/16
Other Consumer Loan
(Source) Bank Indonesia, compiled by BTMU SRD Singapore
Second Hand Prices of Major Car Models
Vehicle Price
Loan Balance
Toyota Avanza 1.3G1.3G
Suzuki Swift
Honda Jazz
Toyota Innova G2.0
250
250
200
225
225
175
200
200
175
175
125
150
150
100
125
125
100
75
100
100
75
75
75
50
50
25
25
200
175
150
50
25
0
New
1 yr
2 yrs 3 yrs 4 yrs
0
New
1 yr
2 yrs 3 yrs 4 yrs
0
150
125
50
25
New
1 yr
2 yrs 3 yrs 4 yrs
0
New
1 yr
2 yrs 3 yrs 4 yrs
(Note) Prices are in IDR million. Loans are calculated as such: initial loan amount of 75% (25% downpayment), 5 year
period, 15% interest rate.
(Source) Various articles, compiled by BTMU SRD Singapore
11
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2. Industry Structure
(4) Financial Performance of Major Companies (3/3)
~ Rising costs putting pressure on margins
The net income ratio of
financing companies has
declined recently as revenue
growth has not been able to
keep up with expenses, with
increased funding costs cited
as one of the main reasons
for the increase in costs.
Automobile financing
companies have higher
profitability as their customers
are relatively more creditworthy.
They also shoulder less cost
burdens (e.g. labour costs
associated with credit
screening/loan collection and
allowance for bad loans).
The profitability of motorcycle
financing companies is lower as
(1) their main customers are
less creditworthy and are more
prone to bad loans,
(2) motorcycle financing
companies incur large labour
costs for credit screening/loan
collection.
12
Earnings of Financing Companies by Vehicle Loan Type
35%
30%
25%
20%
15%
10%
5%
0%
2009
2010
2011
2012
2013
2014
2015
Net Income Ratio for 7 Automobile Financing Companies
Net Income Ratio for 3 Motorcycle Financing Companies
(Note) 7 automobile financing companies’ financials used: Astra Sedaya Finance, Toyota Astra Financial Services, BFI
Finance、Clipan Finance Indonesia, BCA Finance, Mandiri Tunas Finance, Buana Finance. 3 motorcycle financing
companies’ financials used: Federal International Finance, Mandala Multifinance, Wahana Ottomitra Multiartha.
(Source) Bloomberg, compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
3. Future Outlook
13
Indonesia Automobile and Motorcycle Finance Industry I July 2016
3. Future Outlook
(1) The Financing Market Outlook
~ The financing market is expected to grow slowly with the increasing demand for automobiles and motorcycles
Automobile demand slowed
down in 2015 due to rising
gasoline prices and high
policy interest rates. However,
sales are expected to recover
in 2016 as major automakers
launch new models in popular
automobile segments.
Similarly, motorcycle demand
declined in 2015 due to
higher fuel prices and low
consumer sentiment.
Recovery is expected from
2017, driven by economic
improvement and traffic
congestion in urban areas.
However, growth will be
gradual as the market is
saturated with a motorcycle
ownership rate of 3.3
people/unit.
Forecasts of Vehicle Sales and Major Economic Indicators
Year
14
2013
2014
2015
2016
2017
2018
CAGR
(2015→2018)
1,116
1,229
1,208
1,013
1,049
1,106
1,178
5.1%
24.8
10.2
-1.8
-16.2
3.5
5.4
6.5
-
1,000 units
7,064
7,744
7,867
6,480
6,474
6,700
6,901
2.1%
%
-11.8
9.6
1.6
-17.6
-0.1
3.5
3.0
-
③ Real GDP Growth Rate
④ GDP per Capita
%
6.0
5.6
5.0
4.8
5.0
5.3
5.5
-
⑤ Population
Million
① Automobile Sales
(YoY)
1,000 units
② Motorcycle Sales
(YoY)
%
USD
3,745
3,676
3,532
3,362
3,620
3,906
4,179
7.5%
245
249
252
255
259
262
266
1.3%
(Note) The figures from 2016 onwards are estimates.
(Source) IMF, CEIC, compiled by BTMU SRD Singapore
Forecast of Vehicle Loans
(IDR Trillion)
20%
400
334
303
15%
275
300
248
200
As such, given that
automobile and motorcycle
loan balance generally
correlate with automobile and
motorcycle sales trends, it is
expected that the automobile
and motorcycle financing
market will grow at a faster
rate than it did in 2015.
2012
183
201
224
10%
5%
100
0%
0
2014
2015
2016
2017
Automobile/Motorcycle Loan (LHS)
(Note) The figures from 2016 onwards are estimates.
(Source) Euromonitor, compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
2018
2019
YoY (RHS)
2020
3. Future Outlook
(2) Competitive Outlook
~ Competition for customers will intensify, leading to wider earning gaps among companies
Going forward, while the financing market is expected to keep growing, new entrants
will intensify competition and the earning gaps among companies will widen according
to their customers’ creditworthiness.
Commercial banks are likely to offer loans with favourable lending terms (e.g. better interest rates)
as they benefit from cheaper fundraising costs and are able to acquire highly creditworthy customers,
especially in urban areas. Their credit costs are expected to remain low and they will report solid
earnings.
Captive finance companies are likely to report solid earnings as they will be able to continue to take
advantage of their cooperation with affiliated dealers to acquire a steady stream of relatively highly
creditworthy customers.
Meanwhile, the earnings of non-captive finance companies are likely to polarize, due to gaps in
customers’ creditworthiness based on their capital structure. Non-captive finance companies
managed by local conglomerates and Japanese trading companies are expected to report solid
earnings by acquiring relatively highly creditworthy customers through their affiliated dealers(note).
However, the intensifying competition will make it more difficult for independent companies to
acquire highly creditworthy customers, and the profitability of these companies will decline due to
the increase in credit costs and incentive rewards to dealers.
(Note) Major automobile and motorcycle manufacturers established joint ventures with local conglomerates and
Japanese trading companies to develop their financing businesses.
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Indonesia Automobile and Motorcycle Finance Industry I July 2016
3. Future Outlook
(3) Regulatory Outlook (1/2)
~ New Financial Services Authority to regulate and supervise the financial sector
The Indonesian government established the Financial Services Authority (Otoritas Jasa
Keuangan or OJK) in January 2014 for the purpose of strengthening regulation and
supervision in the financial sector.
Traditionally, the Central Bank (Bank Indonesia or BI) supervised banks, while the Capital Market
Supervisory Agency (BAPEPAM-LK) supervised all financial agencies except banks (stock
exchanges, securities firms and insurance companies, etc.).
However, the supervisory system did not work properly, as there were inconsistencies between BI
and BAPEPAM-LK regarding their regulatory framework, with some financial agencies not controlled
by either BI or BAPEPAM-LK. Hence, OJK was established and appointed to supervise most of the
financial agencies, whereas BI focuses mainly on financial policy.
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Indonesia Automobile and Motorcycle Finance Industry I July 2016
3. Future Outlook
(3) Regulatory Outlook (2/2)
~ More stringent financial regulations may reduce the number of small to medium-sized companies
Since the establishment of the
new system, OJK and BI are
considering implementing new
regulations on non-bank
financial companies in order to
stabilize the financial system.
In particular, the criteria for loan
assets and allowance for bad
loans in ③ are expected to be
stringent. Thus, there is a
concern that this may cause the
profitability of some companies
to fall.
Also, as per ④, local companies
with debt in foreign currency
such as JPY and USD may be
affected as changes in fund
raising methods could lead to
higher interest rates.
The implementation date of the
new regulations has not yet
been specified. If implemented,
companies with a weak capital
base will see their
competitiveness weaken as
they have to incur increased
costs to develop their
organization/system. Hence,
they might be forced to partner
with large companies or fold.
17
New Regulations
Major Categories1
①
Complying with capital
requirements
Strengthening the
② functions on corporate
governance
Strengthening the risk
③ management system of
loan assets
Description
■ Current regulations state that the minimum capital for companies is IDR 100 billion with a
maximum foreign ownership of 85%. However, OJK will encourage companies to fully
comply with the capital requirements as numerous non-bank financial institutions do not
meet this capital requirement.
■ There will be more stringent regulations on corporate governance such as requirements,
responsibilities and work execution processes for shareholders, board members and
auditors in order to increase the transparency and health of financing companies.
■ Companies will have to maintain their financial health indicators such as capital-to-asset
ratio, gearing ratio2 and non-performing loan ratio3 at a certain level in order to stay in
business.
■ Companies which have foreign-currency-denominated loans will have to comply with
regulations on hedging ratio, liquidity ratio and acquiring an external credit rating
(implemented in January 2015).
Strengthening regulations
■ More specifically, the minimum hedging ratio should be 20% (25% from 2016 onwards) for
④ on foreign-currencyforeign currency offshore debt, while the minimum liquidity ratio should be 50% (70% from
denominated loans
2016 onwards). In addition, companies will be required to have a credit rating of at least
BB from an external credit rating agency.
(Note 1) It is expected that ① to ③ will be implemented by OJK, while ④ will be introduced (reviewed) by BI.
(Note 2) Gearing ratio is a financial ratio that compares some form of borrowed funds to the equity capital (including
subordinated debt).
(Note 3) Non-performing loan ratio refers to the percentage of loans that are more than 90 days overdue to total gross loans.
(Source) Bank Indonesia, newspaper articles, etc., compiled by BTMU SRD Singapore
Indonesia Automobile and Motorcycle Finance Industry I July 2016
3. Future Outlook
(4) Future Challenges
~ Maintaining and expanding profitability is a major challenge for financing companies
As competition is expected to intensify going forward, financing companies have to
increase their loan balance and maintain/increase their profitability by reducing their
credit costs.
① Strengthening the marketing capabilities
Financing companies have to continue to strengthen their alliance with dealers in order
to maintain their competitive advantage in customer acquisition. It is important for them
to attract dealers further by improving their loan serviceability and enhancing their
marketing capabilities.
② Strengthening their credit control system
Strengthening their credit control system is crucial for financing companies to
maintain/expand their profitability by reducing credit costs.
In addition to the complying with more stringent loan screening standards, financing companies will
need to establish an effective loan screening process such as developing a credit scoring model (an
automated credit scoring system) based on customers’ attributes which can be adjusted according
to employment/income environment.
Early loan collection (successfully reminding debtors who are late in repaying their loans by up to a
week) is crucial for preventing bad loans. Financing companies will need to make their loan
collection operations more efficient by concentrating on reminder operations at their own call centres
or using outsourced debt collection agencies.
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Indonesia Automobile and Motorcycle Finance Industry I July 2016
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Indonesia Automobile and Motorcycle Finance Industry I July 2016
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[Contact] Kazuhiro Hori ([email protected])
Kohei Yamaguchi ([email protected])
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Indonesia Automobile and Motorcycle Finance Industry I July 2016