① The level of risk control and due diligence capabilities remain key focuses for Institutions. Additionally, with the continuous improvement of financial consumer protection mechanisms, violations related to financial consumer protection have also become a 'red line' that Institutions need to pay extra attention to. ② With the country implementing various supportive and guiding policies for new energy vehicles, new energy vehicle loan business may become a new transformation and development opportunity for auto finance companies.
On December 19, Financial Associated Press reported (Reporter: Gao Ping) that another auto finance company has been penalized. The latest information from the Shaanxi regulatory bureau of the National Financial Supervisory Administration shows that BYD Auto Finance has received a fine. In total, since the beginning of 2024, three auto finance companies have been fined a total of 1.5 million yuan, with the penalties primarily related to violations in business areas.
From the data, both the number of penalized auto finance companies and the amount of fines this year have exceeded the total for last year. Industry insiders told Financial Associated Press that regulation in the auto finance sector is under significant pressure. With the continuous development of the auto finance market, the scale and complexity of businesses are increasing, and regulatory authorities will continue to maintain strict regulation to ensure stability and order in the financial market.
BYD Auto Finance was fined for inadequate management of related transactions. In 2023, the company's related transaction amount was about 29.2 billion yuan.
According to information disclosed by the regulator on December 18, BYD Auto Finance was fined 0.3 million yuan by the Shaanxi regulatory bureau of the National Financial Supervisory Administration, primarily due to inadequate management of related transactions.
Su Xiaorui, a senior researcher at Suxi Smart Research, stated in an interview with Financial Associated Press that generally speaking, inadequate management of related transactions may involve violations of prohibitive regulations related to related transactions, and could also lead to violations in reporting, disclosure, etc. This inadequacy may affect the operational independence of the Institution. Additionally, some 'unfair and unreasonable related transactions' may also infringe on the rights of other market participants.
Data shows that BYD Auto Finance was approved for establishment in August 2014 and officially established in February 2015. The equity structure indicates that BYD Auto Finance was jointly funded by BYD Company Limited, Bank Of Xi'An, and BYD Precision Manufacturing Co., Ltd. The current registered capital is 10 billion yuan. Among them, BYD holds 77% directly, Bank Of Xi'An holds 20%, and BYD Precision Manufacturing Co., Ltd. holds 3%.
According to relevant announcements disclosed on the official website of BYD Auto Finance, the total amount of non-exempt disclosure of related transactions for BYD Auto Finance in 2023 is approximately 29.2 billion yuan, among which, related transactions based on funds amount to 29.106 billion yuan. Furthermore, the amounts for non-exempt disclosure of related transactions in the first, second, and third quarters of 2024 are 0 billion yuan, 2 billion yuan, and 10.2 billion yuan, respectively, with all transaction types being fund-based related transactions.
On April 15 this year, BYD Auto Finance released 26 major related party transaction announcements at once, many of which involved related transactions with BYD, mainly for BYD to provide guarantee services for the company's inter-bank borrowing business, charging guarantee service fees based on the actual amount used for the guarantee. The company conducts inter-bank borrowing business with Banks, and the shareholder BYD is required by the bank's credit requirements to provide guarantees for the company's bank loans according to the contribution ratio. According to the requirements, the company provides counter-guarantees for BYD. The amount involved in a single announcement of related transactions is often several hundred million yuan.
BYD Auto Finance stated that, in 2023, the company mainly involved three types of related transactions based on assets, funds, and intermediary services. Major related transactions involve guarantee fees and counter-guarantees related to the related party BYD, and unified transaction agreements involve shareholder deposits related to BYD Co., Ltd. and information service fees related to BYD Auto Sales Co., Ltd., while the rest are general related transactions.
In the current year, auto finance companies have been fined a total of 1.5 million yuan, and institutions need to focus on risk control and due diligence capabilities.
Looking at the fines imposed on auto finance companies this year, two other companies had been fined previously, mainly involving business violations. Among them, Chongqing Changan Automobile Finance was fined 0.9 million yuan in September, with violations including imprudent review of additional loan issuance; infringing on the financial consumers' right to choose; and inadequate risk control in the used car business. SAIC General Motors Finance was fined 0.3 million yuan in September for imprudent pre-loan investigations in some retail auto loan businesses.
"From the data, the characteristics are diverse violations in business links, covering loan issuance reviews, consumer rights protection, risk control, and various business aspects." Regarding the situation of fined auto finance companies this year, Broadcom's chief analyst in the financial industry, Wang Pengbo, stated that the review and risk control of loan business have always been high-incidence areas, which easily lead to financial risks, such as the rise in non-performing loan rates. It is recommended that auto finance companies establish and improve internal compliance management systems, clarify operational specifications and risk prevention points for each business link.
In an interview with a reporter from Caixin, Su Xiaorui stated that from the reasons for the penalties imposed on auto finance companies this year, the level of risk control and due diligence capabilities remain key aspects that institutions need to focus on. In addition, with the continuous improvement of the financial consumer protection mechanism, related violations have also become a "red line" that institutions need to pay extra attention to.
Statistics show that a total of 2 auto finance companies were fined last year, with a total penalty of 1 million yuan, due to serious violations of prudent operation rules or serious violations of internal control related to retail loan business. Since the beginning of this year, 3 companies have been fined so far, with a total penalty of 1.5 million yuan.
Wang Pengbo candidly stated that, from the trend perspective, the tightening regulation is an inevitable trend. With the continuous development of the auto finance market, the expansion of business scale and the increase in business complexity, regulatory agencies are strengthening oversight to maintain the stability and order of the financial market. Su Xiaorui also noted that, in terms of quantity and amount, the regulation in the auto finance field is under high pressure, and auto finance companies need to learn from the experiences and lessons of similar institutions and improve their internal control mechanisms from the source, continuously addressing compliance weaknesses.
The "2023-2024 China Automobile Financial Company Industry Development Report" released by the Chinese Banking Association shows that by the end of 2023, the total asset scale of 25 automobile financial companies nationwide reached 964.818 billion yuan, remaining stable overall. In addition, the balance of new energy vehicle loans reached 165.334 billion yuan, an increase of 61.25% year-on-year.
According to the first department of United Credit Rating, as the market saturation of automobile finance increases, competitive pressure from other industry participants such as commercial Banks intensifies, market competition within the industry may escalate, especially for automobile financial companies of brands with poor sales. However, with the government's implementation of various supportive and guiding policies for new energy vehicles, new energy vehicle loan business may become a new opportunity for transformation and development for automobile financial companies.
