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Jakarta Post

Zero down payment may boost sales, worsen smog

While the relaxation of vehicle financing will boost car sales, it has raised concerns that the expected increase in the number of cars will worsen traffic congestion and exacerbate air pollution

Riska Rahman (The Jakarta Post)
Jakarta
Thu, January 17, 2019

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Zero down payment may boost sales, worsen smog

W

hile the relaxation of vehicle financing will boost car sales, it has raised concerns that the expected increase in the number of cars will worsen traffic congestion and exacerbate air pollution.

The relaxation was made possible through the issuance of a Financial Services Authority (OJK) regulation that allows for a zero percent down payment, which averaged 15 to 30 percent before.

The regulation, issued on Dec. 28, means that multifinance companies can now offer zero down payments to customers in order to help the country’s non-bank financial industry grow.

However, the OJK’s decision was not warmly welcomed by all.

Vice President Jusuf Kalla said the new regulation could increase multifinance companies’ non-performing financing (NPF) due to an increase in bad credit.

Association of Indonesian Automotive Manufacturers deputy chairman Jongkie Sugiarto said the association supported the regulation as it could boost the number of car sales, which was expected to reach around 1.1 million units this year.

However, he was concerned that the relaxation could also pose a threat to the country’s car sales. “The increasing number of bad credit can create an oversupply of used cars that can result in slower new car sales in the future,” Jongkie said on Wednesday.

Meanwhile, transportation expert Darmaningtyas said the regulation could worsen traffic congestion in Indonesia’s big cities, like Jakarta and Surabaya, as it would encourage more people to buy their own cars instead of using public transportation.

“The regulation is contradictory to the government’s efforts to develop mass public transportation,” he said, adding that it could also burden the state budget because more cars meant that the government would have to import more oil.

However, OJK deputy commissioner for the non-banking financial industry Bambang W. Budiawan said the zero percent down payment was not meant to encourage people to buy cars.

“Instead, we’re pushing multifinance firms to help finance angkot [public minivans], as well as commercial and heavy vehicles for agricultural purposes,” he added, saying not all the companies would offer zero percent down payments to customers.

“Only those that have a less than 1 percent NPF rate on vehicle financing can offer it to customers,” Bambang said.

He added that the zero down payment rule was not mandatory because each company would adjust the offer based on their credit assessments.

“So if they think that a debtor is eligible for only a 5 percent down payment, those firms are allowed to do it as long as they have a less than 1 percent NPF on their vehicle financing,” Bambang said.

Indonesian Finance Services Association chairman Suwandi Wiratno said, on average, leasing firms offered a 15 to 30 percent down payment rate on vehicle loans.

The regulation, he added, would enable those firms to be more flexible when calculating down payment rates.

Based on the regulation, Suwandi said, the OJK had recorded that only about half of the 188 financing companies supervised by it were eligible for the zero percent down payment rule.

However, some multifinance firms in the country are taking a cautious approach.

Bank Central Asia finance president director Roni Haslim said the offer could present a good opportunity for the firm to boost its credit sales. “But we still have to consider the benefits and risks of the lower down
payment rate.”

Mandiri Tunas Finance director Armendra added that his company would remain prudent when disbursing vehicle loans despite the possibility that the company might ask for zero down payments as a way to keep its NPF low in the future.

Despite the cautious approach by industry players, Suwandi said the regulation, which will also relax cash loan disbursements, would hopefully boost the industry’s growth in the coming years.

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