Source: Broker China
On April 3, in accordance with the State Council's unified deployment of large-scale equipment upgrades and consumer goods trade-in, the People's Bank of China and the State Financial Supervisory Administration jointly issued the “Notice on Adjusting Policies Related to Auto Loans” (hereinafter referred to as the “Notice”), which took effect from the date of publication.
The “Notice” clarifies that financial institutions independently determine the maximum loan ratio for private use of traditional power vehicles and private new energy vehicles based on the borrower's credit status, repayment ability, etc. on the premise that they comply with the law and that risks are manageable. Financial institutions are encouraged to combine segmented scenarios such as automobile trade-in to strengthen innovation in financial products and services, and appropriately reduce penalties arising from early settlement of loans during the automobile trade-in process.
Overall, the “Notice” relaxed the maximum loan ratio for private use of traditional power vehicles and private use of new energy vehicles. The maximum loan ratio for commercial traditional power vehicles, commercial new energy vehicles, and used cars remained the same.
According to the regulations issued by the People's Bank of China and the former Banking Regulatory Commission in 2017, the maximum loan disbursement rates for private use of traditional power vehicles and private use of new energy vehicles are 80% and 85% respectively. The “Notice” adjusts this ratio to be determined independently by financial institutions. The maximum loan issuance ratio can reach 100%, that is, the full amount is paid according to the price of the purchased car. The maximum loan ratio for commercial traditional power vehicles, commercial new energy vehicles, and used cars remained unchanged at 70%, 75%, and 70%.
The two departments have made it clear that the next step will be to increase financial support to better support reasonable automobile consumption needs.
Optimizing the maximum loan disbursement ratio for auto loans
Overall, the “Notice” relaxed the maximum loan ratio for private use of traditional power vehicles and private use of new energy vehicles. The maximum loan ratio for commercial traditional power vehicles, commercial new energy vehicles, and used cars remained the same. At the same time, the “Notice” increases financial support for car trade-in scenarios.
According to the “Notice”, the maximum loan disbursement ratio for private use of traditional power vehicles and private new energy vehicles shall be determined independently by financial institutions; the maximum loan disbursement ratio for commercial traditional power vehicles is 70%, the maximum loan disbursement ratio for commercial NEV is 75%; and the maximum disbursement rate for used car loans is 70%.
Regarding the scope of models implementing the NEV loan policy, the “Notice” makes it clear that financial institutions can implement it on the basis of the provisions of the “Vehicle Loan Management Measures” and in accordance with the principles of voluntariness, prudence, and risk controllability, with reference to the “Catalogue of Recommended Models for Promotion and Application of New Energy Vehicles” issued by the Ministry of Industry and Information Technology.
The “Notice” encourages financial institutions to strengthen innovation in financial products and services, taking into account segmented scenarios such as new cars, used cars, and automobile trade-in, and appropriately reduce penalties arising from early settlement of loans during the automobile trade-in process.
The “Notice” requires financial institutions to effectively strengthen the management of the entire auto loan process, strengthen pre-loan review and post-loan management, continuously improve the borrower credit risk assessment system and collateral value evaluation system, ensure the safety of loan assets, and strictly prevent the misuse of loan funds.
Promote the steady operation of financial institutions' auto loan business
Automobile consumption is a key area for expanding domestic demand and promoting consumption in this round. At this year's National Conference, Minister of Commerce Wang Wentao said that China has two priorities to promote consumption this year: one is to promote the trade-in of consumer goods such as automobiles, home appliances, and home furnishings, and the other is to boost service consumption.
Wang Wentao pointed out that China's automobile and home improvement market is large. Some products have been used for a long time, have high carbon emissions, and also have certain safety hazards. It should be said that demand for potential updates has entered a period of centralized release. For example, there are more than 16 million passenger cars using national emissions standards of 3 and below. Among them, there are more than 7 million cars that are over 15 years old.
Recently, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which clearly states “encourage banking institutions to appropriately reduce the down payment ratio for passenger car loans and reasonably determine the term and credit limit of automobile loans on the premise that they comply with the law and that risks are manageable.”
While adjusting policies relating to automobile loans, this “Notice” also suggests that all branches of the People's Bank of China and agencies dispatched by the General Financial Supervisory Authority should strengthen monitoring, analysis and evaluation of the quality of automobile loan assets and institutional soundness to promote the steady operation of automobile loan business of financial institutions.
According to the CITIC Construction Investment Research Report, total supporting policies such as “trade-in” are gradually being implemented, and resonance between supply and demand in the automotive industry can be expected. According to estimates, even without considering the role of policy support, when looking at the overall replacement period of 6 to 8 years for domestic automobiles, domestic automobile sales in China will still be at the peak of replacement from 2024 to 2025, corresponding to the high sales volume from 2016 to 2018, and the automobile scrapping rate will also increase compared to previous years. Domestic automobile demand is expected to be further released under policy catalysts.
editor/tolk