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Only three months ago, banks were enticing consumers to buy new cars with easy No Down Payment and Low Down Payment auto loan promos.

            Now, thanks to the COVID-19 pandemic that shut down the national economy, caution is  the new buzzword as far as auto financing is concerned.

            Banks expect a surge in the repossession of cars after the Enhanced Community Quarantine is lifted due to the reduced or lost income of clients.

            To get a sense of how the banking industry plans to cope with the new normal created by the pandemic, PDI Motoring addressed five questions online to the consumer banking heads of BPI Family Savings Bank, UCPB, Asia United Bank and Security Bank

1.  With car sales expected to plunge due to the economic dislocation caused by the coronavirus lockdown, what is your plan to help car dealers recover in terms of sales?

Dennis Fronda, Head of Retail Loans, BPI Family Savings Bank:

Even during the ECQ, we continued to receive and process loan applications, most of which came from online channels.  We are exercising a certain degree of flexibility for some documentary requirements in recognition of the challenges presented by the ECQ and are using alternative means of verifying income and other due diligence.  We continue to support the programs that are being instituted by our auto manufacturers and some dealer groups.

Philip S. Pabellico, UCPB SVP, Consumer Banking Group Head

Based on informal talks with our dealer-partners, they are still cautiously testing the waters during the ECG through tactical sales efforts.  I think all of us are on a wait-and-see attitude and we would be able to draw up more concrete plans post-ECQ.

Rafael Dimalanta, Asia United Leasing and Finance Corp. President

Under the new normal environment, the creation of a “virtual showroom” in the website of the bank/finance institution may be the most effective way to leverage synergy with the auto dealers or manufacturers.  The target market here will be the bank depositors or customers who visit the bank’s website or do regular online banking transactions.  The “virtual showroom” should display all the available models being sold by the dealers, including materials pertaining to the specs and features of each model, color, promos and the like.  In the virtual showroom, the prospective customer should be able to  chat live with a sales person who should be able to provide immediate response to the customer’s queries as if they are both physically present in the dealer showroom floor.

Jojo Victor, Security Bank, First Vice President

Inasmuch as banks and financial institutions would like to jumpstart lending after ECQ, banks will prudently take a cautious approach when lending resumes.  The bank industry cannot just go catch up lending without identifying the high risk customer segments created by COVID-19.

2.  Before the ECQ was imposed on March 16, banks were offering No Down Payment or Low Down Payment auto financing promos.  When the ECQ is lifted, do you plan to continue these promos?  Or will you modify these promos and make it even easier for consumers to buy a car with an auto loan?

D. Fronda, BPI Family Savings Bank   

On our part, we proactively continue to review our business operations and systems for offers that will make it easier for Filipinos to own a car.  And a great factor of this will be through strategic initiatives with out partner dealers and manufacturers.

P.S. Pabellico, UCPB 

We will most probably be on a wait-and-see attitude after the ECQ is lifted and may be more prudent in auto lending as consumers are expected to prioritize essential services over the acquisition of big-ticket items.  While we are currently on ECQ, we are prioritizing lending to essential services in line with government’s call to support the production and delivery of essential products and services.

Rafael Dimalanta, AUB

The low and zero down payment schemes have been the most effective promos in selling more vehicles for the past many years.  I believe these schemes with some modification on payment modes will continue to be employed by dealers and banks in driving vehicle sales.  Modification on payment schemes, particularly like a payment holiday for a period of 3 months for the first monthly installment, is necessary to be attuned with the present times, that is, to give the borrower ample time to recover from the adverse financial impact of the lockdown period.  A payment holiday coupled with a graduated payment scheme (wherein monthly payments are low in the initial part of the term of the loan, then gradually increasing as the loan moves towards maturity) will definitely make buying a car/loan servicing easier for consumers.

J. Victor, Security Bank, First Vice President

Banks will be very cautious in resuming lending operations after ECQ as the industry will have to adjust to the new normal.  Lending policies might even be tightened to ensure that the bank lends to the right customer segments.

3.  After the ECQ, do you foresee a surge in the repossession of cars acquired via an auto loan?  A surge in the sales of repossessed cars?

D. Fronda, BPI Family Savings Bank

It is practically unavoidable, but we are determined to do what we can to minimize it.  Proactively, we initially offered a 30-day grace period for clients, which has since been updated to align with the later released Bayanihan Act and we are modifying it in accordance with ongoing government pronouncements.  Additionally, to show our appreciation for our modern-day heroes, we have the 90-day grace period offer exclusive to front liners – military personnel, healthcare/ medical practitioners, and members of the police force wherein interests of their monthly dues covered during the ECQ are completely waived.

P.S. Pabellico, UCPB 

Yes, unfortunately we expect an increase in cars being voluntarily surrendered due to a contraction in household income and the prioritization of household expenses brought about by the crisis.

R. Dimalanta, AUB

Definitely, there will be an increase in repossession of cars which will come mostly from borrowers who derive income from “non-essential” business activities.  Fortunately in our financial institution, our exposure to such industry is small.  More repossessed cars may not necessarily mean more sales of these cars especially if the government will push for the “work from home” for government and private company employees.  On the other hand, there may be an uptick likewise because many people would rather use private cars than public transport in commuting to minimize exposure to the virus.

J. Victor, Security Bank, First Vice President

Banks and financial institutions expect a substantial increase in repossessions after ECQ.  Those whose sources of income were severely affected by the pandemic and cannot continue paying will probably surrender the mortgaged vehicle.  There will be a surge in the sales of repossessed units as banks need to unload their inventory.

4.  During the two-month ECQ, is your bank waiving the penalties for late payments of monthly  amortizations?  When is your deadline for the full payment of arrears, May 30 or end of June?

D. Fronda, BPI Family Savings Bank

Yes. Aligned with the Bayanihan Act, we are granting a grace period on all amortization payments due within the ECQ period and their maturities will be extended.  Upon the lifting of the ECQ, clients are only expected to pay their regular amortization.  Clients who do not need or want to avail of the grace period are also given the option to opt out of the grace period as granted by the Bayanihan Act.  Many of our clients have indicated that they are willing and able to make their payments as scheduled, and we of course, welcome that.

P.S. Pabellico, UCPB

Yes. In compliance with the Bayanihan To Heal As One Act, we implemented the guidelines on the 30-day payment moratorium (and likewise extended the first and second extension until April 30 and May 15) and waived penalties for late payments of monthly amortization.  Clients will not be required to pay double their monthly amortization on their next due date after the ECQ is lifted.  The only thing that will change is that their loan term will be extended based on the number of days that they availed of the moratorium, say an additional 30 or 60 days at the end of their loan term.  In line with the Bayanihan Act, the accrued interest on the principal amount will be collected on a staggered basis after the ECQ or during the remainder of the client’s loan term.  However, if the client chooses to continue with his monthly amortizations during the ECQ, all he needs to do is send us an email to loans@ucpb.com or crc@ucpb.com and we won’t suspend his auto debit arrangement or the deposit of his postdated checks.

R. Dimalanta, AUB

Yes.  No penalties, charges, interest will be allowed as mandated by the Bayanihan Act.  Depending on your due date in March and April, payment may be extended to one month up to two months, hence, the original maturity of the loan will be moved to one or two months.  For those who are qualified for one month extension, payment will be in May.  For those qualified tor two months, payment may start in June.  The main idea is that no two monthly payments are lumped in one month unless, of course, the customer is willing to pay such.

J. Victor, Security Bank, First Vice President

Banks and financial institutions are covered by the Bayanihan to Heal As One Act/ RA No. 11469 that mandates the granting of payment extension for loan amortizations that will fall within the ECQ period.  There will be no late payment penalties for the extension.  However, as allowed by the IRR of RA 11469, banks can collect accrued interest for the payment extension  The accrued interest can be settled on the next amortization after ECQ or on a staggered basis for a specified period of the remaining loan term.

5.  What was the percentage or rate of repossession versus total auto loans transacted in 2019?  What do you estimate will be the percentage or rate of repossession this year?

D. Fronda, BPI Family Savings Bank

Repossession data is not available at this moment.  For this year, unfortunately, it appears that an increase in car repossessions is inevitable.  We’ll do what we can to minimize it, and we remain optimistic that the flexible payment options we’ve instituted will make it more manageable for our clients to pay their loan amortizations.

P.S. Pabelico, UCPB 

The 2019 industry rates for non-performing loans was 3.7 percent.  Due to the pandemic and the consequent ECQ, we expect it to be higher than the past due levels during the Asian crisis.

R. Dimalanta, AUB

On an industry level, I do not have data on repossession.  What I do have is the BSP data on Non-Performing Loans for Auto which was at 3.82 percent as of December 2019.  Based on my personal observation, I estimate that the NPLs will be no less than 5 percent this year.  The increase will be coming from the vulnerable sectors like Tourism/Hospitality, Retail Food and Manufacturing.

J. Victor, Security Bank, First Vice President

Industry NPL percentage is at 3.8 percent for 2019.  Banks expect this to increase in 2020 as an effect of COVID-19.

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